AP MicroeconomicsCore Economic Concepts
Allocative Efficiency
Allocative efficiency is an economic state where no resources are wasted and the best possible resource allocation has been achieved.
Allocative efficiency occurs when it is impossible to make one party better off without making another party worse off. In a market, this is achieved when the price equals the marginal cost of production, ensuring that the right amount of goods are produced and consumed. Allocative efficiency is one of the conditions under which markets are considered economically efficient.
Formula / Example
Price = Marginal Cost
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