Final answer:
The concept discussed relates to the long-run equilibrium of a perfectly competitive market, where eventually all firms earn zero economic profits due to the entry and exit of firms responding to economic profits and losses. This state of equilibrium assumes productive and allocative efficiency, although in reality, variations in efficiency among market participants and unequal income distribution among consumers can affect this outcome.
Step-by-step explanation:
The idea that all individuals or firms in a market earn the same returns in the long run is related to the concept of long-run equilibrium in a perfectly competitive market. In such a market, positive economic profits will attract competition, leading to an increase in supply and a reduction in prices until profits are nullified. Conversely, economic losses drive firms out of the market, decreasing supply and increasing prices until losses are eliminated. This process continues until no new firms desire entry and no existing firms want to exit the market because economic profits have been driven down to zero.
Additionally, we must consider concepts of productive and allocative efficiency. A perfectly competitive market in long-run equilibrium is said to achieve both, but this assertion is based on specific economic definitions of 'efficiency,' and takes into account the consumers' ability to pay, which is influenced by the distribution of income in a society. Hence, this model does not account for inequities in income distribution which can affect access and affordability of products to different consumers. Therefore, when considering long-run market behavior, it is essential to understand these underlying assumptions and their implications.