2.5 Flashcards
What is allocative efficiency?
Allocative efficiency refers to producing the quantity of goods mostly wanted by society.
What question does allocative efficiency answer?
It answers the what/how much to produce question.
When is allocative efficiency achieved?
It is achieved when the economy allocates its resources so that society gets the most benefit from consumption.
Define marginal benefit.
The extra or additional benefit received from consuming one more unit of a good.
Define marginal cost.
The extra or additional cost of producing one more unit of output.
What is consumer surplus?
The difference between the highest prices consumers are willing to pay for a good and the price actually paid.
What is producer surplus?
The difference between the price received by the firms for selling their goods and the lowest price they are willing to accept to produce the good.
What is social (community) surplus?
Producer surplus + consumer surplus; social welfare.
Fill in the blank: Allocative efficiency is achieved when the economy allocates its resources so that the society gets the most benefit from _______.
[consumption]
True or False: Allocative efficiency is only concerned with the quantity of goods produced.
False.
