Which of the following statements is incorrect?
A)To be efficient, a competitive equilibrium must allocate goods to consumers so that no reallocation of the goods could make all consumers better off.
B)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.
C)To be efficient, a competitive equilibrium must satisfy substitution efficiency.
D)To be efficient, a competitive equilibrium must satisfy output efficiency.

Question

Quizplus · Accepted Answer

Statements A, B, and C are all true and describe aspects of efficiency in a competitive equilibrium. However, statement D is incorrect because output efficiency is not a requirement for a competitive equilibrium to be efficient. Output efficiency refers to producing the maximum possible output with given inputs, whereas efficiency in a competitive equilibrium means that there is no way to reallocate goods or inputs to make all consumers or firms better off, respectively. While output efficiency may be desirable, it is not a necessary condition for an efficient allocation in a competitive equilibrium. A competitive equilibrium must satisfy both substitution efficiency (where goods are allocated to consumers in the most preferred way) and output efficiency (where inputs are allocated to firms in a way that maximizes output). Therefore, statement D is incorrect as output efficiency is a necessary condition for efficiency in a competitive equilibrium.

Which of the Following Statements Is Incorrect