The necessary condition for allocative efficiency is that each commodity be produced in an amount that makes the marginal benefit to society of the last unit produced equal to the marginal cost to society of that last unit. The satisfaction of this condition in a market economy relies on the assumptions of:
A)utility maximization, profit maximization, and perfect competition.
B)utility maximization and profit maximization, but not perfect competition.
C)profit maximization and perfect competition, but not utility maximization.
D)utility maximization and perfect competition, but not profit maximization.

Question

Quizplus · Accepted Answer

Allocative efficiency in a market economy is achieved when the marginal benefit to society equals the marginal cost of production. This condition relies on the assumptions of utility maximization (consumers aim to get the most satisfaction from their resources), profit maximization (firms aim to maximize their profits), and perfect competition (a market structure where no single producer or consumer can influence the market price). These assumptions ensure that resources are allocated in the most efficient way possible, leading to the optimal production and consumption levels of goods and services.

The Necessary Condition for Allocative Efficiency Is That Each Commodity