The three conditions for an efficient allocation of resources are fulfilled:
A)when the distribution of income is equal.
B)whenever all consumers have the same willingness to pay for a good.
C)if the product and input markets are competitive.
D)only at the midpoint of the welfare frontier.

Question

Quizplus · Accepted Answer

The efficient allocation of resources is achieved when the product and input markets are competitive, which drives prices down to their marginal costs. This ensures that resources are allocated to their most valuable uses, maximizing total welfare. Income distribution and individual willingness to pay do not necessarily ensure an efficient allocation of resources, as long as the competitive market conditions are met. The welfare frontier refers to the feasible set of Pareto-optimal allocations, but the efficient allocation can be anywhere on this frontier and not necessarily at the midpoint.

The Three Conditions for an Efficient Allocation of Resources Are