Explain why perfectly competitive markets achieve allocative efficiency.
What will be an ideal response?
In a perfectly competitive market, market supply equals market demand. Also, market price equals marginal cost. Therefore, if market supply is less than market demand, then buyers value the last unit of output more than the marginal cost. In such a case, producers need to increase production to meet the market demand. In addition, if market supply is more than market demand, then the cost to producers for producing a good is greater than marginal benefit to consumers. As a result, production should decrease so that it meets market demand. The perfectly competitive market, therefore, constantly moves toward an equilibrium between market supply and demand. When this happens, producers are producing what buyers want. This condition is called allocative efficiency because producers are allocating to reflect consumer preferences.
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Answer the following statement true (T) or false (F)
Albert and Betty hire Christine and David to play music at their wedding. Elizabeth, who lives behind the church, cannot study because of the loud music. The third party is:
a. Albert. b. Betty. c. Christine. d. David. e. Elizabeth.
During the financial crisis of 2007–2009, the interest rate spread on mortgage-backed securities over Treasury bills
A. increased tremendously. B. increased moderately. C. decreased moderately. D. decreased tremendously.
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A. ice B. wine grapes C. housing D. copper