What does allocative efficiency refer to?

Understand the Problem

The question is asking for the definition and explanation of allocative efficiency, which refers to a situation in an economy where resources are distributed in such a way that maximizes the total benefit received by individuals in society. It addresses how resources are allocated to produce the most valued goods and services according to consumer preferences.

Answer

A state where resources' marginal benefit equals their marginal cost.

Allocative efficiency refers to a state where resources are distributed in such a way that their marginal benefit to society equals their marginal cost.

Answer for screen readers

Allocative efficiency refers to a state where resources are distributed in such a way that their marginal benefit to society equals their marginal cost.

More Information

Allocative efficiency ensures optimal resource use to meet society's needs, balancing production with consumer preferences.

Tips

Mistaking allocative efficiency for productive efficiency, which deals with producing goods at the lowest cost.

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