Allocative efficiency

Allocative efficiency is a state of the economy in which production is aligned with the preferences of consumers and producers; in particular, the set of outputs is chosen so as to maximize the social welfare of society.^[1] This is achieved if every produced good or service has a marginal benefit equal to the marginal cost of production.

Examples[edit]

A numerical example of allocative efficiency[edit]

Allocation efficiency occurs when there is an optimal distribution of goods and services, considering consumer's preference. When the price equals marginal cost of production, the allocation efficiency is at the output level. This is because the optimal distribution is achieved when the marginal utility of good equals the marginal cost. The price that consumer is willing to pay is same as the marginal utility of the consumer.

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Financial market efficiency

Pareto efficiency

Production-possibility frontier

Productive efficiency

X-inefficiency

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