Microeconomics

Running head: MICROECONOMICS
Microeconomics
Name of the Student
Name of the University
Course ID

MICROECONOMICS1
Table of Contents
Question 2........................................................................................................................................2
Question a....................................................................................................................................2
Question b....................................................................................................................................3
Question 3........................................................................................................................................4
Question a....................................................................................................................................4
Question b....................................................................................................................................5
Question c....................................................................................................................................6
References........................................................................................................................................7

MICROECONOMICS2
Question 2
Question a
Allocative efficiency occurs corresponding to efficient and optimal distribution of goods
and services taking into account preference of consumers. A more accurate definition of
allocative efficiency states that output is allocative efficient when price equals to the marginal
cost of production. At this point marginal utility that consumers receive equal to the willingness
to pay of the consumers (Cowell, 2018). Perfectly competitive market is considered as a
benchmark of allocative efficiency. Perfectly competitive market is allocative efficient because
output is produced corresponding to the level where price equals to marginal cost. Both in the
short run and in the long-run, equilibrium occurs where price is same as the marginal cost of
production.
Figure 1: Perfectly competitive market and allocative efficiency