In order to effectively address this question, few key terms must be defined. Marginal
social benefit(MSB) is defined as the satisfaction experiences by consumers at specific
goods, which represent the benefits society devises from consumption at the goods.
Marginal social cost(MSC) defined as a state in which opposing forces or instances are
balanced, economic equilibrium is a condition or a state in which economic forces are
balanced.
In economics theory relevant to this question, market equilibrium which is a correlated
state of price on which quantity demanded and supplied are equal(balanced). It is
directly correlated with allocative efficiency because when marginal social benefit(MSB)
is equal to Marginal social cost, it means that society is producing goods in a balanced
state in which demand and supply are equal. Any other result means resources are
misallocated. In all comes to an end it means that market equilibrium has been
achieved and resources are correctly allocated thus also known as allocative efficiency.
To expand further, an example would be used. A cafe has 10 consumers that want to
buy americano(Demand for americano = 10), The cafe made exactly 10 americano, this
means that all 10 consumers get what they wanted(Demanded). The cafe managed to
sell anything he supplied and no any excess demand, this signifies market equilibrium
as both sides are satisfied and will be further displayed in the diagram below.
Price s
cs
p
1
p Equlibrium
Equlibrium
D
q2 q
1 quantity
social benefit(MSB) is defined as the satisfaction experiences by consumers at specific
goods, which represent the benefits society devises from consumption at the goods.
Marginal social cost(MSC) defined as a state in which opposing forces or instances are
balanced, economic equilibrium is a condition or a state in which economic forces are
balanced.
In economics theory relevant to this question, market equilibrium which is a correlated
state of price on which quantity demanded and supplied are equal(balanced). It is
directly correlated with allocative efficiency because when marginal social benefit(MSB)
is equal to Marginal social cost, it means that society is producing goods in a balanced
state in which demand and supply are equal. Any other result means resources are
misallocated. In all comes to an end it means that market equilibrium has been
achieved and resources are correctly allocated thus also known as allocative efficiency.
To expand further, an example would be used. A cafe has 10 consumers that want to
buy americano(Demand for americano = 10), The cafe made exactly 10 americano, this
means that all 10 consumers get what they wanted(Demanded). The cafe managed to
sell anything he supplied and no any excess demand, this signifies market equilibrium
as both sides are satisfied and will be further displayed in the diagram below.
Price s
cs
p
1
p Equlibrium
Equlibrium
D
q2 q
1 quantity
