Allocative Efficiency

Definition

Allocative efficiency refers to an economic state where resources are allocated in such a way that maximizes overall societal welfare or utility.

Related terms

Productive Efficiency: Productive efficiency occurs when goods or services are produced at their lowest possible cost.

Marginal Benefit: Marginal benefit is the additional satisfaction or utility gained from consuming one more unit of a good or service.

Externalities: Externalities refer to costs or benefits that affect individuals not directly involved in an economic transaction.