Assume that instead of a competitive market, the decisions in this economy are made by a Social Planner capable of forcing people to work and produce in any way the Planner wants. This Planner is benevolent but (s)he has dismissed the role of markets. What should we expect about the allocation in this case? What is the underlying intuition behind it?

Choice 1 of 4:The competitive equilibrium achieves a higher level of consumption than the social planner's plan because, while the social planner seeks to minimize unnecessary competition among consumers, a decentralized economy incentivizes consumers to work harder and earn more income through competition.

Choice 2 of 4:The competitive equilibrium achieves a lower level of consumption than the social planner's plan because the inefficiency caused by redundant competition in a decentralized economy hinders production, resulting in the consumer ultimately consuming less than they would under the social planner's plan, which avoids such inefficiencies.

Choice 3 of 4:The allocation in the competitive equilibrium is identical to the allocation forced by the social planner because there are no factors that affect economic agents outside of a transaction, either positively or negatively.

Choice 4 of 4:The allocation in the competitive equilibrium is identical to the allocation forced by the social planner because prices are adjusted toward a socially efficient level by the so-called 'invisible hand,' even though consumers and firms cannot predict each other's behavior.

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most likely outcome of the scenario you described is Choice 2 The competitive equilibrium achieves a lower level of consumption than the social planne... View the full answer