Allocative efficiency refers to a situation where
A)opportunity costs are equal.
B)we cannot produce more of any one good without giving up some other good.
C)goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit.
D)opportunity cost is zero.
E)marginal benefit is maximized.

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when goods and services are produced at the lowest cost possible and in quantities that provide the greatest possible benefit. This means that resources are allocated to produce the goods and services that are most in demand by consumers, resulting in the maximum satisfaction of their wants and needs. Option A is incorrect because opportunity costs do not need to be equal for allocative efficiency to occur. Option B is incorrect because it only refers to the concept of production possibility frontier. Option D is incorrect because opportunity cost is never zero in reality. Option E is incorrect because maximizing marginal benefit alone does not guarantee allocative efficiency.

Allocative Efficiency Refers to a Situation Where