Question

Attaining "allocative efficiency" means that:

A. The law of increasing opportunity costs has reached a maximum
B. The least costly methods are being used to produce a product
C. Resources are being devoted to the production of products most desired by society
D. The gap between marginal benefits and marginal costs of the product is biggest

Answer 1

Allocative efficiency is achieved when resources are used to produce the most desired products by society option(c), which happens when the price equals the marginal cost in a perfectly competitive market.

Step-by-step explanation:

Attaining "allocative efficiency" means that resources are being devoted to the production of products most desired by society (Option C), which ensures that consumers are supplied with quantities of products that align with their demand. In a market with perfect competition, this condition is met when the price (P) of a good equals the marginal cost (MC) of producing it; this price reflects the marginal benefit to society and assures allocative efficiency.

When P > MC, it indicates that society values the additional units more than it costs to produce them, hence more should be produced. Conversely, in a monopoly, where P is greater than MC at the profit-maximizing output, allocative efficiency is not achieved as fewer units are sold at a higher price compared to what would happen in a competitive market.