Question

A bookstore is purchasing more books, and the owner is trying to decide whether to invest in sci-fi titles or historical fiction titles. Half of the patrons prefer sci-fi, and half of them prefer historical fiction. He decides to invest only in historical fiction. Describe the main type of efficiency operating here and explain how you know.

a) Allocative efficiency; it maximizes social welfare.

b) Productive efficiency; it minimizes production costs.

c) Equity efficiency; it ensures fair distribution.

d) Economic efficiency; it maximizes total satisfaction.

Answer 1

The bookstore owner's decision to focus on historical fiction, despite the equal preference for sci-fi among patrons, exemplifies allocative efficiency, aiming to maximize overall satisfaction rather than solely reducing costs or ensuring even distribution.

Step-by-step explanation:

The bookstore owner's decision to invest only in historical fiction titles can be described as an instance of allocative efficiency. This is because allocative efficiency is concerned with distributing resources in a way that maximizes total satisfaction for society or a particular group. In this case, even though half of the patrons prefer sci-fi, the owner may have other reasons for choosing historical fiction, such as higher profit margins or lower supplier costs, which could lead to a maximization of overall satisfaction from the resources available.

Allocative efficiency is achieved when the mix of goods and services produced represents the mix that society most desires. It is different from productive efficiency, which would be about minimizing production costs or maximizing the number of books that could be produced with the resources available, without as much concern for the types of books the consumers want.