Allocative efficiency is achieved when the marginal benefit of a good
A) exceeds the marginal cost by as much as possible.
B) exceeds the marginal cost, but not by as much as possible.
C) is less than the marginal cost.
D) equals the marginal cost.
E) equals zero.

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when marginal benefit equals marginal cost. In other words, society is allocating resources in such a way that the benefit gained from the last unit produced is equal to the cost of producing it. This ensures that resources are being used in the most efficient way possible, maximizing social welfare. Choices A and B suggest that marginal benefit exceeds marginal cost, which would result in overproduction and inefficient resource allocation. Choice C suggests that marginal cost exceeds marginal benefit, which would result in underproduction and inefficient resource allocation. Choice E suggests that there is no benefit or cost, which does not make sense in terms of resource allocation.

Allocative Efficiency Is Achieved When the Marginal Benefit of a Good