What two conditions must hold for a competitive market to produce efficient outcomes? Group of answer choices Firms must maximiz
e profits, and consumers must all pay prices equal to their maximum willingness to pay. Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay. Demand curves must reflect all costs of production, and supply curves must reflect consumers' full willingness to pay. Firms must minimize production costs, and consumers must minimize total expenditures.
The answer is: Supply curves must reflect all costs of production, and demand curves must reflect consumers´ full willingness to pay.
Explanation:
The characteristics of a competitive market are:
Many buyers and sellers
Companies make a similar product.
Both buyers and sellers have access to perfect information about price.
No transaction costs.
No barriers to entry into or exit from the market.
Theoretically if all of the above conditions occur, profit maximizing companies will combine with utility maximizing consumers, and markets will tend to produce efficient outcomes.
When there are more substitutes for a product, the demand for the product is more price elastic. The implication of this is that the demand of such product will drop when there is increase in it price because people can get another product which will play the same role with the previous at a lesser price. Hence, the demand for the product vis more price elastic.
