Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Higher price elasticity leads to lower marginal benefit and allocative inefficiency.
B
Lower price elasticity results in higher marginal benefit and allocative efficiency.
C
Price elasticity has no effect on marginal benefit or allocative efficiency.
D
Higher price elasticity allows consumers to adjust their demand based on marginal benefit, leading to allocative efficiency.
Understanding the Answer
Let's break down why this is correct
Answer
Price elasticity refers to how much the quantity demanded of a good changes when its price changes. When we talk about allocative efficiency, we mean that resources are being used in a way that maximizes the total benefit to society. This is closely related to the concept of marginal benefit, which is the additional satisfaction gained from consuming one more unit of a good. If a good is elastic, a small change in price can lead to a large change in quantity demanded, which suggests that consumers are very responsive to price changes. For example, if a popular snack's price drops, many more people might buy it, indicating that the price is closely tied to the overall benefit people receive from it, helping achieve allocative efficiency by aligning production with consumer preferences.
Detailed Explanation
When price elasticity is high, consumers can change their buying habits easily. Other options are incorrect because This suggests that higher price elasticity means less benefit, which is not true; This implies that lower elasticity gives more benefit, but that's incorrect.
Key Concepts
marginal benefit
price elasticity
Topic
Allocative Efficiency and Pricing
Difficulty
medium level question
Cognitive Level
understand
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