Overview
Allocative efficiency is a key concept in economics that refers to the optimal distribution of resources to maximize societal welfare. It occurs when the quantity of goods produced matches consumer preferences, ensuring that resources are used where they are most valued. This balance is typically ac...
Key Terms
Example: When a market produces the quantity of goods that consumers want at the price they are willing to pay.
Example: The price of apples stabilizes when the quantity supplied matches the quantity demanded.
Example: If a consumer is willing to pay $10 for a book but buys it for $7, their consumer surplus is $3.
Example: If a producer is willing to sell a shirt for $5 but sells it for $8, their producer surplus is $3.
Example: A company deciding how much budget to allocate to marketing versus production.
Example: The number of cars available at a dealership.