Allocative efficiency concerns

Question

Quizplus · Accepted Answer

Allocative efficiency concerns the allocation of resources in such a way that total economic surplus is maximized. This means that resources are being used in the most efficient way possible to produce goods and services that benefit society as a whole. It is not just about producing outputs at the lowest possible cost, or discouraging all monopoly firms, but rather about ensuring that resources are distributed in the most optimal way possible for the overall well-being of society. Encouraging monopoly solely for the purpose of generating innovation may not necessarily lead to allocative efficiency, as it may come at the expense of higher prices and reduced consumer surplus. The equitable distribution of resources may be important for considerations of social justice, but it is not the sole concern of allocative efficiency.

Allocative Efficiency Concerns