Allocative efficiency
Definition. Allocative efficiency is achieved when resources are allocated so that the goods and services produced match consumer preferences and no reallocation could make society better off. It occurs at the output where price equals marginal cost, so the value placed on the last unit equals the cost of producing it.
At this point the sum of consumer and producer surplus is maximised. A monopoly that sets price above marginal cost produces too little and is allocatively inefficient.
This term belongs to Monopoly in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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