Future Business Leader Achievments (FBLA) Economics Practice Exam

Which economic concept describes the situation where the price mechanism allocates resources efficiently?

1. Market failure

2. Equilibrium

3. Comparative advantage

4. Price discrimination

The correct answer is: Equilibrium

The concept that describes a situation where the price mechanism allocates resources efficiently is equilibrium. In economics, equilibrium occurs when supply and demand are balanced, leading to a stable price and quantity of goods in the market. At this point, the quantity of goods that consumers are willing to buy equals the quantity that producers are willing to sell, resulting in an efficient allocation of resources. When the market is in equilibrium, there are no shortages or surpluses, allowing resources to be utilized in the most efficient way possible. This efficiency ensures that all transactions that can benefit both buyers and sellers occur, maximizing overall welfare in the economy. In contrast, other concepts such as market failure refer to situations where externalities or public goods lead to inefficient outcomes, while comparative advantage is focused on the benefits of trade based on different opportunity costs. Price discrimination involves charging different prices to different consumers for the same good, which does not necessarily lead to an efficient allocation of resources.