Use the three basic questions to describe why perfect competition ...

[DelorasTo]

Use the three basic questions to describe why perfect competition is efficient.
 
  What will be an ideal response?

Question 2

When Ferrari sells stock to the public in its IPO, it will do so through the New York Stock Exchange. People who buy the shares will
 
  A) do so in the indirect finance market.
  B) own part of the company.
  C) be promised to be repaid their investment plus interest.
  D) All of the above are true.

[jessofishing]

Answer to Question 1

In perfect competition, price is equal to marginal cost. Price reflects the willingness to pay of buyers, while the marginal cost is the opportunity cost of the resources needed to produce the good. Thus, the goods produced will be the ones that buyers want. In addition, resources will be allocated efficiently among firms because firms must minimize the cost of production to maximize profit. Last, competitive free markets ensure that the goods will be distributed to the households in an efficient manner. Households will buy an item if it generates a greater (or equal) amount of utility than its price. As long as households can choose freely how to spend their income, they will not end up with the wrong items.

Answer to Question 2

B

[DelorasTo]

Excellent

[laurnthompson]

TYSM