Question

The choice on a production possibilities set that is socially preferred, or the choice on an individual’s budget constraint that is personally preferred, will display _____________________.

Answer 1

The correct answer is allocative efficiency.

Step-by-step explanation:

A production possibility curve shows different bundles that can be produced using the given resources. A budget constraint shows the different bundles of two goods that a consumer can purchase using his limited income.

All the points on the production possibilities curve or budget constraint show all the bundles that are attainable and productively efficient.

Allocative efficiency represents the level of output where the marginal benefit earned from the last unit is equal to the marginal cost incurred.

The society as whole or a rational consumer will choose the point where it has allocative efficiency, or in other words, where the marginal benefit is equal to marginal cost.