Allocative efficiency occurs when consumers pay a market price that reflects the private marginal cost of production. The condition for allocative efficiency for a firm is to produce an output where marginal cost, MC, just equals price, P.Click to see full answer. In this way, what is meant by allocative efficiency?Definition: Allocative efficiency is an economic concept that occurs when the output of production is as close as possible to the marginal cost. In this case, the price the consumers are willing to pay is almost equal to the marginal utility they derive from the good or the service.One may also ask, what is allocative efficiency example? Allocative efficiency means that the particular mix of goods a society produces represents the combination that society most desires. For example, often a society with a younger population has a preference for production of education, over production of health care. Similarly, it is asked, what is the point of allocative efficiency? Allocative efficiency is a state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing.What can the government do to promote allocative efficiency?A. Impose a minimum of interference in the market, thus enabling the people who are willing to pay the most for a given good or service to obtain it.
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