Question

Which of the following are true about efficient markets?

I. They generally operate at equilibrium.
II. They allocate consumption among consumers.
III. They change the quantity traded.
IV. They can find no way to make people better off without making others worse off.
V. They can reallocate sales among sellers.
A. I and V
B. I and II
C. I and III
D. I and IV
E. I, II and IV

Answer 1

Efficient markets generally operate at equilibrium and allocate resources to their best alternative use. However, they do not necessarily change the quantity traded or reallocate sales among sellers. The correct answer is E. I, II, and IV.

Step-by-step explanation:

Efficient markets generally operate at equilibrium (Statement I is true). In perfectly competitive markets, resources are allocated to their best alternative use, which is known as allocative efficiency (Statement II is true).

However, efficient markets do not necessarily change the quantity traded (Statement III is not true) or reallocate sales among sellers (Statement V is not true).

While it is possible for markets to find ways to make people better off without making others worse off, this is not a definitive characteristic of efficient markets (Statement IV is not true). Therefore, the correct answer is E. I, II, and IV.