A2.01.14: Allocative Efficiency Flashcards
1
Q
Define allocative efficiency
A
The point at which the market allocates resources at the socially optimum level of output (AR = MC)
2
Q
What are the features of allocative efficiency
A
- There are many producers / consumers
- Perfect info amongst both producers and consumers
- No barriers to entry
- Firms are profit maximisers
- Consumers are utility maximisers
3
Q
How can we show a change in producer or consumer surplus on a diagram
A
point where msc=msb or mc = ar
4
Q
How can we show a deadweight loss
A
Area highlighting MB > MC including allocative efficiency
5
Q
Formula for Social costs
A
SC = PC + EC
6
Q
Formula for Social Benefits
A
SB = PB + EB
