Economic efficiency requires:

• A. firms maximize their profits regardless of consumer welfare
• B. the government sets prices for all goods and services
• C. all individuals receive the same income
• D. resources are allocated such that marginal benefit equals marginal cost

Answer: (D)

Verified step by step guidance

1. Understand the concept of economic efficiency: it occurs when resources are allocated in a way that maximizes total net benefits to society.
2. Recognize that economic efficiency requires the marginal benefit (MB) of a good or service to equal its marginal cost (MC), ensuring no resources are wasted or underutilized.
3. Analyze why other options do not represent economic efficiency: profit maximization alone ignores consumer welfare; government price setting can lead to inefficiencies; equal income distribution is a normative goal, not a condition for efficiency.
4. Formulate the condition for economic efficiency mathematically as \(\text{MB} = \text{MC}\), where marginal benefit is the additional benefit from consuming one more unit and marginal cost is the additional cost of producing one more unit.
5. Conclude that economic efficiency is achieved when resources are allocated such that \(\text{MB} = \text{MC}\), balancing benefits and costs in the economy.