Final answer:
Allocative efficiency occurs when production occurs at the point on the production possibilities frontier that represents the allocation that society desires the most.
Step-by-step explanation:
Allocative efficiency occurs when production occurs at the point on the production possibilities frontier (PPF) that represents the allocation that society desires the most. It means that the particular combination of goods being produced is the one that society most wants.
For example, if a society values education and healthcare equally and wants to produce both goods efficiently, then allocative efficiency would occur at a point on the PPF where there is an equal amount of resources allocated to education and healthcare.
Allocative efficiency ensures that the social benefits received from producing a good are in line with the social costs of production and that resources are allocated in the best possible way.