allocative effiency

What is allocative efficiency?

Allocative efficiency occurs when resources are distributed in such a way that maximizes the total benefit received by society.

How is allocative efficiency achieved?

Allocative efficiency is achieved when the price of a good or service reflects the marginal cost of producing it, resulting in optimal resource allocation.

What is the relationship between price and marginal cost in allocative efficiency?

In allocative efficiency, the price of a good equals its marginal cost, meaning that the last unit produced is valued by consumers at a price equal to the cost of resources used to produce it.

What are the implications of allocative efficiency?

When an economy achieves allocative efficiency, it indicates that resources are used to produce goods and services that are most desired by consumers, leading to increased overall welfare.