For an entire economy,allocative efficiency requires that
A)price is greater than marginal cost for all goods.
B)price equals average cost for all goods.
C)marginal cost equals price for all goods.
D)MRP is equated for all factors of production.
E)goods are allocated equitably across markets.

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when the price of a product equals its marginal cost - this ensures that resources are allocated in the most efficient way possible. If price is greater than marginal cost (option A), there is a deadweight loss and resources are being wasted. If price equals average cost (option B), the firm is breaking even and not making a profit, leading to a lack of incentive to continue producing. MRP equated for all factors of production (option D) is related to production efficiency, not allocative efficiency. Equitable allocation of goods across markets (option E) does not necessarily ensure that resources are being allocated efficiently.

For an Entire Economy,allocative Efficiency Requires That