Efficiency through Competition

Steps:

• Identify advantages of competitive markets: focus on benefits like innovation and resource allocation.
• Evaluate each option against economic principles: advantages promote efficiency, not elimination of core issues.
• Eliminate options that describe disadvantages or impossibilities.
• Select the option aligning with allocative and productive efficiency.

Why B is correct:

• In competitive markets, firms minimize costs and produce where price equals marginal cost, achieving Pareto efficiency per Adam Smith's invisible hand.

Why the others are wrong:

• A: Inequalities arise from market outcomes but are not an advantage; competition aims for fairness in opportunity.
• C: Scarcity is a fundamental economic condition; markets allocate scarce resources, not eliminate them.
• D: Markets signal quantities via supply and demand, but no guarantee exists without intervention.

Final answer: B