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.
Sources
- Investopedia: Allocation Efficiency - investopedia.com
- Allocative Efficiency - Wikipedia - en.wikipedia.org
- Allocative Efficiency Overview - Economics Help - economicshelp.org
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