Answer to Question #195263 in Microeconomics for Emily

Question

1. Examine the view that the best allocation of resources, from society’s point of view, occurs where the marginal private benefit equals the marginal private cost.

Answer 1

Consumers are having the most potential fulfillment from the existing mix of products and services becoming manufactured and distributed which is referred to as allocating efficiency. Consumers cannot maximize their fulfillment through modifying their shopping patterns and purchasing various amounts of products and services. If an economy is in equilibrium, society benefits to the best of its ability. When the market obtained an amount less than Q*, additional customer and producer surplus may be obtained by producing and selling a larger quantity of this commodity.

When marginal benefit is more than marginal cost leads to the increase in allocative efficiency. Allocative productivity should improve as long as this phase proceeds. This method would achieve its final outcome at the optimal degree of allocative production that is, marginal gain = marginal cost.

Hence, the marginal private benefit equals the marginal private cost is explained.