Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
When resources are distributed in such a way that maximizes total welfare
B
When the price of goods is set above the equilibrium price
C
When production occurs at the lowest possible cost
D
When all firms in a market are making zero economic profit
Understanding the Answer
Let's break down why this is correct
Answer
Allocative efficiency in economics occurs when resources are distributed in a way that maximizes the overall benefit to society. This means that goods and services are produced in quantities that match what consumers want and are willing to pay for. When allocative efficiency is achieved, the price of a product reflects its true value to consumers, ensuring that everyone gets what they need without waste. For example, if a bakery produces exactly the number of loaves of bread that people want to buy at the price they are willing to pay, then the bakery is achieving allocative efficiency. In this situation, resources are used effectively, and both the bakery and the customers benefit.
Detailed Explanation
Allocative efficiency happens when resources are used to make people as happy as possible. Other options are incorrect because Some might think that setting prices high is good for profit; It's easy to confuse low production costs with efficiency.
Key Concepts
allocative efficiency
Topic
Allocative Efficiency and Pricing
Difficulty
easy level question
Cognitive Level
understand
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