What is allocative efficiency and how does it relate to the PPC? Explain and represent this phenomenon on a graph on the market for shoe.

Answered: What is allocative efficiency and how…

Business

Economics

What is allocative efficiency and how does it relate to the PPC

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter2: Production Possibilities Frontier Framework

Section: Chapter Questions

Problem 7WNG

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Concept explainers

Welfare Analysis

Welfare analysis of the society is related to welfare economics. From the economic point of view former welfare economics refers to that subject which uses the techniques of microeconomics to analyse and evaluate the welfare at the economic or aggregate level.

Question

What is allocative efficiency and how does it relate to the PPC? Explain and represent this phenomenon on a graph on the market for shoe.

Definition Definition State in which the marginal benefit to a consumer is equal to the marginal cost of producing a product. Allocative efficiency occurs when all the market participants (buyers and sellers) have all of the knowledge required to make informed decisions regarding consumption and production of goods and services.

Expert Solution

Production Possibility Curve (PPC)

Production Possibility Curve or PPC represents all the combinations of two goods which can be produced in a economy by using the given resources. It relates to the distribution of goods in an optimal manner.

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