Allocative efficiency means that

Question

Quizplus · Accepted Answer

Allocative efficiency means that resources are allocated in a way that maximizes total social welfare, which occurs when all mutually beneficial trades have taken place. Therefore, option B is the correct answer. Option A is incorrect since maximizing production does not necessarily mean resources are allocated efficiently. Option C is incorrect since it only considers the marginal benefit of the next unit, not the overall allocation of resources. Option D is incorrect since producer surplus is only a part of the overall social welfare, and maximizing it does not guarantee allocative efficiency. Option E is incorrect since allocative efficiency requires mutually beneficial trades to occur.

Allocative Efficiency Means That