Allocative efficiency Flashcards
1
Q
What is allocative efficiency ?
A
The Maximisation of society surplus where D=S ( the sum of CS and PS )
Maximisation of net social benefit MSB=MSC
Where resources perfectly follow consumer demand
2
Q
What is the private optimum ?
A
MPC=MPB
3
Q
What is the social optimum ?
A
MSC=MSB
4
Q
What are private costs ?
A
The producers cost of production
5
Q
What are social costs ?
A
Private costs + External costs
6
Q
What is private benefit ?
A
Individual consumer benefit upon consumption
7
Q
What are social benefits ?
A
Private benefit + External benefit
8
Q
What are we assuming when we talk about allocative efficiency ?
A
There are many buyers and sellers
There is perfect market information
The are 0 Barriers to entry and exit
Firms are profit maxing
Consumers are utility maxing
