When the market achieves allocative efficiency,
A)marginal benefit equals marginal cost.
B)marginal cost is at its minimum.
C)marginal cost minus marginal benefit is positive.
D)marginal benefit minus marginal cost is positive.
E)marginal benefit is at its maximum.

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when resources are allocated in a way that maximizes the net benefit to society. This occurs when marginal benefit (MB) equals marginal cost (MC). At this point, any additional unit of the good or service would provide a net benefit of zero to society. Therefore, A) marginal benefit equals marginal cost is the correct choice. B) may be correct for productive efficiency, but not for allocative efficiency. C) and D) are incorrect, as they describe a situation where there is a net loss to society, rather than efficiency. E) may be correct for consumer surplus or utility, but not for allocative efficiency.

When the Market Achieves Allocative Efficiency