Allocative Efficiency
Definition
Allocative efficiency refers to an economic state where resources are allocated in such a way that maximizes overall societal welfare or utility.
Analogy
Think of allocative efficiency as organizing your study time effectively. You allocate more time to subjects you struggle with while spending less time on topics you already understand well, ensuring you make efficient use of your limited study hours.
Related terms
Productive Efficiency: Productive efficiency occurs when goods or services are produced at their lowest possible cost.
Marginal Benefit: Marginal benefit is the additional satisfaction or utility gained from consuming one more unit of a good or service.
Externalities: Externalities refer to costs or benefits that affect individuals not directly involved in an economic transaction.
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- What is allocative efficiency?
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