Allocative efficiency occurs where:
A)the price of a good is less than the marginal cost of producing it.
B)the price of a good is greater than the marginal cost of producing it.
C)the price of a good is equal to the marginal cost of producing it.
D)the greatest quantity of output is available for sale.
E)the price of a good equals the average variable cost of producing it.

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when the price of a good is equal to the marginal cost of producing it. This ensures that resources are allocated efficiently and the production of the good is optimized. If the price is less than marginal cost (option A), producers will not produce enough to meet demand. If the price is greater than marginal cost (option B), producers are creating an inefficient amount of the good. Option D is incorrect as it is referring to productive efficiency, not allocative efficiency. Option E is also incorrect as it refers to the average variable cost, not the marginal cost.

Allocative Efficiency Occurs Where