Question

What is the term used to describe a state of the economy in which production represents consumer preferences, and every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

Answer 1

The term describing the economic state where production aligns with consumer preferences, and goods are produced so that the marginal cost equals the marginal benefit, is called allocative efficiency.

Step-by-step explanation:

The term used to describe a state of the economy where production reflects consumer preferences and each good or service is produced to the point where the last unit's marginal benefit to consumers is equal to the marginal cost of producing it is known as allocative efficiency. Allocative efficiency implies producing the optimal quantity of output, such that the marginal benefit to society of one more unit is just equal to its marginal cost. This concept is central to achieving efficiency in the demand and supply model, ensuring the economy maximizes the benefits from its limited resources and that all potential gains from trade are realized. Markers such as Consumer Surplus, Producer Surplus, and Social Surplus are useful to observe the benefits arising from this state.