Question

Provide brief descriptions/definitions of Allocative, and Cost/Productive Efficiency.

Answer 1

ALLOCATIVE EFFICIENCY - Allocative efficiency is a type of economy where production is represented by consumer's preferences. A firm produces every goods or services upto a certain limit where the last unit produced provides marginal benefit to consumer. Allocative efficiency determines the correct resources allotment according to consumer need and desires. It is important to make eight decision of where to distribute resources in order to maximize value.

PRODUCTIVE EFFICIENCY - Productive efficiency defines the maximum amount of goods or services an economy can produce at a given time. It is an economic state where the economy could not produce any more unit of output without sacrificing production of another good. Production efficiency is achieved when goods and services are distributed equally in order to consumer need and where margibal cost is equal to marginal utility of goods.