- 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