Allocative Efficiency in a Monopoly : Societal Welfare :: Competitive Market : ?

Allocative efficiency happens when resources are distributed in a way that maximizes the overall happiness or welfare of society. In a monopoly, a single company controls the market and sets prices higher than what would be found in a competitive market, leading to less production and lower consumer satisfaction. This means that while the monopoly may make a profit, society as a whole is not as well off because fewer people can afford the product. In contrast, in a competitive market, multiple companies compete with each other, which usually leads to lower prices and more choices for consumers, increasing societal welfare. For example, if a company sells ice cream at a high price due to lack of competition, fewer people can buy it, but if several ice cream shops compete, prices drop, and more people enjoy ice cream, improving overall happiness.