1.2 The allocation of resources

Question 1

Resource allocation

Answer 1

The way in which a society’s productive assets are deployed across their alternative uses

Question 2

Productive efficency

Answer 2

When a firm operates at minimum average cost, choosing an appropriate combination of input and producing the maximum output possible from these inputs

Question 3

Allocative efficiency

Answer 3

Achieved when society is producing the appropriate bundle of goods and services relative to consumer preferences - this occurs when price equals marginal cost

Question 4

Market

Answer 4

A set of arrangements that allow transactions to take place

Question 5

Market economy

Answer 5

Where market forces are allowed to guide the allocation of resources within a society

Question 6

Centrally planned economy

Answer 6

Where the government guides resource allocation within a society

Question 7

Mixed economy

Answer 7

A combination of market forces and government intervention guides the allocation of resources within a society