Which of the following is the best defnition of allocative efficiency?
the use of the least cost method of production
the production of the product mix most wanted by society
the full employment of all available resources
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The best answer of the options you have provided here is the second option. Allocative efficiency refers to the degree to which the product mix that is produced conforms to what society wants.
Allocation is the process of deciding how many resources get used to make a variety of goods and services. We must decide, for example, if we want our resources used to make hybrid and electric cars or to make large “gas guzzlers.” In a market economy, resources are allocated efficiently because they are allocated to those things that consumers want. This happens through the workings of the forces of supply and demand.
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