A Free- Market Economy with Perfect Allocative Efficiency Does Not

question 57

Multiple Choice

A free- market economy with perfect allocative efficiency does not exist in reality because

• A)firms in many industries have some degree of market power and face negatively sloped demand curves,and produce a level of output where P > MC.
• B)the decentralization of economic power in a free- market economy does not allow for allocative efficiency.
• C)government intervention in the economy prevents the economic forces that would eventually bring the market to an allocatively efficient outcome.
• D)the assumption of profit- maximization is not a realistic assumption about the behaviour of firms.
• E)the assumption of utility maximization is not a realistic assumption about the behaviour of consumers.

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