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There are two aspects to this definition. First, the economy has to be producing as much as it possibly could be. In other words, the economy has to be working as efficiently as possible. There cannot be any resources that are not being used. There cannot, for example, be machines in factories that are lying around, not being used. All available resources have to be used to their maximum potential.
Second, the economy has to be producing the optimal mix of products. It has to be producing the things that people want. An economy is not allocating resources efficiently if it is working with complete but efficiently but is making things that people do not want.
So, the efficient allocation of resources in an economy occurs when all the resources of the country are being used as efficiently as possible to make the mix of goods and services that the country’s people want.
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