📚 Learning Guide
Optimal and Sub-optimal Outcomes
hard

Which of the following scenarios could lead to an optimal market outcome? Select all that apply.

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Choose the Best Answer

A

A perfectly competitive market with no externalities

B

A monopolistic market that sets prices below marginal cost

C

A market experiencing positive externalities that are unaddressed

D

Government intervention that corrects for information asymmetry

E

A market where consumer preferences are perfectly aligned with producer offerings

Understanding the Answer

Let's break down why this is correct

Answer

An optimal market outcome occurs when resources are allocated in the most efficient way, meaning that everyone benefits as much as possible from what is available. For example, if a farmer grows apples and sells them at a fair price, both the farmer and the customers benefit; the farmer earns money while customers enjoy fresh apples. This can happen when there is healthy competition among sellers, allowing prices to stay fair and quality to be high. On the other hand, a sub-optimal outcome might occur if one seller has too much control over the market, leading to higher prices and fewer choices for consumers. Therefore, scenarios that promote competition, fair pricing, and consumer choice are likely to lead to an optimal market outcome.

Detailed Explanation

None of the options provided lead to an optimal market outcome. Other options are incorrect because A perfectly competitive market is good, but if there are no externalities, it doesn't guarantee the best outcome; A monopoly setting prices below costs can hurt profits and lead to shortages.

Key Concepts

Optimal outcomes
Market efficiency
Externalities
Topic

Optimal and Sub-optimal Outcomes

Difficulty

hard level question

Cognitive Level

understand

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