When the Allocation of Resources in a Free Market Environment

question 92

Multiple Choice

When the allocation of resources in a free market environment is such that a different allocation would increase society's welfare,economists say that:

• A) market failure has occurred.
• B) the efficiency condition is met.
• C) decision makers have faced the full marginal benefits and marginal costs of their decisions.
• D) producers have maximized total cost.

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Definitions:

Interest Rate

An interest rate is the cost of borrowing money or the reward for saving, typically expressed as a percentage of the principal amount annually.

Loanable Funds Market

The market where savers supply funds for loans to borrowers. It's a conceptual framework for understanding the determination of the interest rate.

Equilibrium Interest Rate

The interest rate at which the demand for funds equals the supply of funds, balancing savings and investments in an economy.

Supply Curve

A graphical representation of the relationship between the price of a good and the quantity supplied.