Answer to Question #67071 in Microeconomics for Lisa
What market structure is used to benchmark allocative efficiency and why do we use it? Illustrate and explain.
Such market structure as perfect competition is used to benchmark allocative efficiency, because when conditions of perfect competition hold, it has been proven that a market will reach an equilibrium in which the quantity supplied for every product or service, including labor, equals the quantity demanded at the current price. This equilibrium will be a Pareto optimum, meaning that nobody can be made better off by exchange without making someone else worse off.
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