Question

multiple choice question
what must be eliminated or avoided if the \invisible hand\ is to produce socially optimal outcomes in purely competitive markets?
normal profits
economic surplus
allocative efficiency
externalities

Explanation:

Externalities, whether positive or negative, distort the market - price mechanism. Positive externalities lead to under - production and negative externalities lead to over - production. Eliminating or avoiding them allows the invisible hand (the price mechanism in a competitive market) to allocate resources efficiently and produce socially optimal outcomes. Normal profits are part of long - run equilibrium in competitive markets and are not a hindrance. Economic surplus is the sum of consumer and producer surplus and is maximized in an efficient market. Allocative efficiency is the goal of the invisible hand in a well - functioning market.

Answer:

Externalities