Answer to Question #41643 in Economics for tiffani

Allocative efficiency is a type of economic efficiency in which economy/producers produce only those types of goods and services that are more desirable in the society and also in high demand. According to the formula the point of allocative efficiency is a point where price is equal to marginal cost (P=MC)or (MC=MR). At this point the social surplus is maximized with no deadweight loss, or the value society puts on that level of output produced minus the value of resources used to achieve that level, yet can be applied to other things such as level of pollution. Free markets under perfect competition generally are allocatively efficient, yet are not for the cases of monopoly, monopsony, externalities, and public goods which construe market failure, or price controls which construe government failure in addition to taxation. Allocative efficiency is the main tool of welfare analysis to measure the impact of markets and public policy upon society and subgroups being made better or worse off.