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Allocative Efficiency (Chain of Analysis)

Level:
A-Level, IB Diploma
Board:
AQA, Edexcel, Eduqas, IB, OCR, WJEC

Last updated 21 Mar 2021

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This short video explains how to build a chain of reasoning to help explain how a firm operating in perfect competition will arrive at an equilibrium price and output that achieves allocative efficiency.

Chains of Reasoning - Allocative Efficiency

Allocative efficiency is a state when the market equilibrium is at a price that represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of supply. Happens in a perfectly competitive market (MPB=MPC).

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