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Allocative Efficiency

Allocative Efficiency

2) Define allocative efficiency. Explain the significance of this concept in economics?



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Allocative efficiency is normally referred as a market that produces types of services or goods that are highly desirable in the society and have high demand. As a matter of fact, Allocative efficiency normally looks at the marginal benefit of the consumption compared to the marginal cost. Therefore, it will only occur when the marginal benefit is equal to the marginal cost.  At this point the social surplus is normally maximized with no dead weight loss. It is a fact that the amount of value that is generated in the market that is allocative efficient is equivalent to the social value of output produced minus the value of..


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