If an economy is allocatively efficient,it must be producing
A) beyond its production possibilities frontier.
B) inside its production possibilities frontier.
C) on its production possibilities frontier.
D) the goods and services that are the most expensive.
E) the goods and services that are the least expensive to produce.

Question

Quizplus · Accepted Answer

Allocative efficiency is achieved when the economy is producing at the point on its production possibilities frontier (PPF) where the marginal benefit (MB) of production equals the marginal cost (MC). This is because producing at any other point would result in either MB>MC or MC>MB, which means either resources are being underutilized or are being used inefficiently. Therefore, the economy must be producing on its PPF.

If an Economy Is Allocatively Efficient,it Must Be Producing