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Topics

Allocative efficiency

Allocative efficiency is reached when no one can be made better off without making someone else worse off. This is known as Pareto efficiency / optimality

Allocative efficiency occurs when the value that consumers place on a good or service (reflected in the price they are willing and able to pay) equals the marginal cost of the scarce factor resources used up in production.

The main condition required for allocative efficiency in a market is that market price = marginal cost of supply.

A revision video on allocative efficiency can be found here

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