Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A local bakery charges a higher price for bread than its marginal cost due to limited supply.
B
A public park charges an entrance fee that equals the marginal cost of maintenance and operations.
C
A monopoly sets a price for a unique medication significantly above the marginal cost, limiting access.
D
A government regulates a utility company to keep prices below marginal cost to support lower-income residents.
Understanding the Answer
Let's break down why this is correct
Answer
Allocative efficiency happens when resources in a market are distributed in a way that maximizes the overall benefit to society. This means that the goods and services produced match what consumers want the most. For example, imagine a bakery that produces just enough bread to meet the demand from customers without wasting any ingredients or time. If the bakery makes more bread than people want, it will go unsold, and that means resources are not being used efficiently. In this case, the bakery is using its resources wisely, ensuring that everyone who wants bread can get it, which is a clear example of allocative efficiency.
Detailed Explanation
When a public park charges an entrance fee equal to its maintenance cost, it covers expenses without wasting resources. Other options are incorrect because This option suggests that a bakery charges more than it costs to make bread; A monopoly setting high prices means fewer people can afford the medication.
Key Concepts
Allocative Efficiency
Marginal Cost
Market Pricing Strategies
Topic
Allocative Efficiency and Pricing
Difficulty
medium level question
Cognitive Level
understand
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