Allocation of resources
Definition. Allocation of resources refers to how an economy distributes its scarce factors of production among competing uses to decide what to produce, how to produce it and for whom. In a market economy this is determined largely by the price mechanism acting through demand and supply.
An efficient allocation directs resources to where they yield the greatest value to society. Market failure occurs when the allocation diverges from the socially optimal outcome.
This term belongs to The Price Mechanism and Its Functions in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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