Allocative Efficiency

Definition

Allocative efficiency refers to an optimal allocation of resources where society's welfare is maximized, meaning that resources are allocated in such a way that no one can be made better off without making someone else worse off.

Related terms

Consumer Surplus: Consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually pay.

Producer Surplus: Producer surplus is the difference between the price at which producers are willing to sell a good or service and the price they actually receive.

Deadweight Loss: Deadweight loss represents the loss of economic efficiency that occurs when equilibrium is not achieved, resulting in allocative inefficiency.