To be efficient, a competitive equilibrium must allocate inputs among firms so that no reallocation of inputs would result in a higher output of all goods.

Question

Quizplus · Accepted Answer

This statement accurately describes the concept of a competitive equilibrium, where firms are motivated to use their inputs in the most efficient way possible in order to maximize output and profit. If a reallocation of inputs would result in a higher output of all goods, then the current allocation is not efficient and the market is not in a competitive equilibrium. This is the definition of a Pareto efficient allocation, which is a necessary condition for a competitive equilibrium. So, the statement is true.

To Be Efficient, a Competitive Equilibrium Must Allocate Inputs Among