A government decides to transition its economic system from a mixed economy towards a pure free market economy by privatising key state-run industries and deregulation, as illustrated in the diagram below.
Which one of the following is a likely microeconomic consequence of this transition?
A reduction in the underprovision of public goods due to increased market competition
A realignment of resource allocation driven by consumer sovereignty and the price mechanism
A more equitable distribution of household income resulting from the removal of state-determined wage controls
An expansion in the consumption of merit goods because of increased allocative efficiency in the private sector