Allocative Efficiency: Allocative efficiency refers to the optimal allocation of resources in a way that maximizes societal welfare. It occurs when resources are allocated in such a way that the marginal benefit equals the marginal cost.
Productive Efficiency: Productive efficiency refers to producing goods and services at the lowest possible cost. It occurs when an economy is producing on its production possibility frontier, utilizing all available resources efficiently.
Opportunity Cost: Opportunity cost is the value of the next best alternative foregone when making a decision. It represents what must be given up in order to obtain something else.