Allocative efficiency in a market means that resources are appropriated such that
A) the additional social benefits outweigh the additional social costs
B) the additional social benefits outweigh the additional private benefits
C) the marginal social benefits are equal to the marginal social costs
D) the marginal social benefits are greater than the marginal social costs

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when the marginal social benefits (MSB) of production are equal to the marginal social costs (MSC). This means that the benefits to society are maximized and resources are allocated in the most efficient way possible. Option A is incorrect because it implies that the benefits are greater than the costs, but not necessarily equal. Option B is incorrect because it only considers private benefits, not the benefits to society as a whole. Option D is incorrect because it implies that benefits are greater than costs, but doesn't necessarily mean that resources are allocated efficiently.

Allocative Efficiency in a Market Means That Resources Are Appropriated