Question

Allocative efficiency means

1) goods are being produced at the lowest cost

2) monopoly power is minimized

3) the goods are being consumed by the consumers who value them most

4) uncertainty is minimized

Answer 1

Allocative efficiency means "Monopoly power is minimized"

Allocative efficiency means that the production is maximized and social werlfare has increased. Monopoly ussually charges higher price and produces restricted output, thus minimizing the power of monopoly on output and pricing will result in increase in production capacity of the monopoly thereby increasing surplus in the society. Whereas Productive efficiency means production is taking place at lowest cost.