Allocative Efficiency


    Allocative Efficiency

    • For efficiency to happen, the factors of production must be fully employed to meet consumers’ needs
    • The prices charged by the producers should be at the lowest level


    • With allocative efficiency, scarce resources are used to produce the goods and services that consumers actually demand.
    • To achieve this, quantity supplied must be equal to the quantity demanded
    • In other words, the market must function at the equilibrium position


    • It is invariable the case that in practice, markets don’t work efficiently
    • Consumers are therefore losing out, since it is not possible to produce what they want in the right quantities
    • This is how allocative efficiency is seen from a microeconomic perspective


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