The competitive market equilibrium is allocatively efficient because a) At the equilibrium quantity the maximum price buyers are willing to pay which represents the value of the last unit to the buyers is equal to the minimum sellers are willing to accept which represents the opportunity cost of the last unit to the seller. b) At a quantity below equilibrium the next unit's marginal benefit is greater than marginal cost and thus producing it would add more to society's benefit than its cost and increase society's wellbeing. So increasing quantity in the direction of equilibrium will increases society's wellbeing c) At a quantity beyond equilibrium the last unit's marginal cost is greater than marginal benefit so it added more to society's cost than to its benefit and thus subtracted from society's welbeign. So decreasing quantity moving back towards equilibrium would increase society's wellbeing. d) Only at equilibrium it is not possibleto improve society's wellbeing so it is the place where society's wellbeing is maximized.
The competitive
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a) At the equilibrium quantity the maximum price buyers are willing to pay which represents the value of the last unit to the buyers is equal to the minimum sellers are willing to accept which represents the |
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b) At a quantity below equilibrium the next unit's marginal benefit is greater than marginal cost and thus producing it would add more to society's benefit than its cost and increase society's wellbeing. So increasing quantity in the direction of equilibrium will increases society's wellbeing |
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c) At a quantity beyond equilibrium the last unit's marginal cost is greater than marginal benefit so it added more to society's cost than to its benefit and thus subtracted from society's welbeign. So decreasing quantity moving back towards equilibrium would increase society's wellbeing. |
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d) Only at equilibrium it is not possibleto improve society's wellbeing so it is the place where society's wellbeing is maximized. |
Allocative effectiveness truly intends that among the points on the creation plausibility outskirts, the point that is picked is socially favored basically in a specific and explicit sense. In a totally competitive market, the cost is equivalent to the marginal cost of creation.
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