Asked by Alvin P. Davis on May 30, 2024
Verified
Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.
Allocative Efficiency
A state of the economy where resources are allocated in a way that maximizes the utility or satisfaction of consumers.
Consumer Surplus
The discrepancy between the aggregate sum consumers are prepared and can afford to spend on a product or service and the actual total amount they end up paying.
- Familiarize oneself with the influence of information imbalances on outcomes in the market and the notion of distributional efficiency.
Verified Answer
EM
Emily MohrmannMay 31, 2024
Final Answer :
True
Explanation :
Allocative efficiency occurs when resources are allocated in a way that maximizes the total welfare of society, which is measured by the sum of consumer and producer surplus. Therefore, when allocative efficiency is achieved, the collective sum of consumer and producer surplus is at a maximum.
Learning Objectives
- Familiarize oneself with the influence of information imbalances on outcomes in the market and the notion of distributional efficiency.
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