Allocative Efficiency
Allocative efficiency is when the right amount of goods and services i.e. products are being produced for the right amount of people at the right price. This means that there is no leftover product and all the people that are willing to pay the price can get the said product. Firms that are allocatively efficient are ones that's price is equal to its marginal cost (P=MC). In other words, Marginal benefit is equal to marginal cost.
An example of allocative efficiency is society wants resources allocated to cds not 45-rpm records. Allocative efficiency means the right mix of goods and services with each different item being produced at the lowest cost. An economy must be careful about this because the limited resources must be apportioned in a way that the combination of goods and services wanted is maintained.


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Allocative Efficiency Illustrated
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http://450.aers.psu.edu/images/allocative_efficiency.gif
http://450.aers.psu.edu/images/allocative_efficiency.gif

The intersection point of price and marginal cost is when a product is allocatively efficient.

Links
wikipedia definition

**allocative efficiency explained**
allocative efficiency in a perfect market

Sample Question
Allocative efficiency is achieved when price is equal to ___.
(The answer is at the bottom)

Allocative Efficiency Explained-Pareto problem- how do you make more people better off without taking away happiness from others?

























answer: marginal cost