allocative efficiency

Question 1

allocative efficiency

Answer 1

where demand is equal to supply maximising society surplus

Question 2

Marginal Private Costs (MPC)

Answer 2

costs of production for a priducer

gas, electricity, wages, rent, advertising

Question 3

Marginal Social Cost (MSC)

Answer 3

Priv cost + external cost
external cost = impact on theird parties (can be +ve or -ve)

Question 4

Marginal Private benefit (MPB)

Answer 4

individual consumer benefits when the consumer is consuming

extra satisfaction

Question 5

allocative effiency occurs when…

Answer 5

maximisation of society surplus (sum of cs and ps)

Question 6

supply curve

mpc

Answer 6

Private costs (MPC) = producers cost of production

gas, electricity, wages, rent, advertising

Question 7

marginal

Answer 7

the extra cost when producing one more unit

Question 8

supply curve

msc

Answer 8

marginal social cost = private cost + external cost

Question 9

demand curve

mpb

Answer 9

marginal private benifits= the satisfaction that consumers face when consuming something)

Question 10

demand curve

msb

Answer 10

marginal social benefit = private benefit +external benefit
external benefit would be any benefit on third parties as a result of someone consuming

Question 11

when allocative efficiency is occuring these three things will take place…

Answer 11

1) maximisation of society surplus
2) maximisation of net social benefit
3) where resources perfectly follow consumer demand

Question 12

what is the maximisation of society surplus

Answer 12

sum of consumer and producer surplus
- consumers have the want for scarce reasources and producers can satisfiy those wants for producers
- if both are as happy as possible, then you cant be doing any better with the allocation
- the traingles of consumer and producer suprlus together arre the greatest it can be and this occurs when demand = supply

Question 13

what does the maximisation of net social benefit mean

Answer 13

occurs when msb=msc
- in a free market that occurs at equilibrium assuming there are no external costs and benefits, supplu will = msc and demand will = msb

Question 14

what does reasources perfectly following consumer demand mean

Answer 14

• no surpluses
• no excess supply
• no shortages
• no excess demand

happens at the equilibrium where market price = p* where everything being produced by producers is being demanded and being able to be bought by consumers

Question 15

assumptions

Answer 15

• many buyers and sellers in the market
• perfect information
• no barriers to entry
• firms are profit maximisers
• consumers are utility maximisers