Which option best describes allocatively inefficiency in a market?
a.Allocatively inefficiency occurs when there is disequilibrium in the market.
b.Allocatively inefficiency occurs when marginal cost of production is greater than marginal benefit.
c.Allocatively inefficiency occurs when marginal cost of production is less than marginal benefit.
d.Allocatively inefficiency occurs when there is neither shortages or surpluses.
Answer
- Allocatively inefficiency occurs when there is disequilibrium in the market.
Explanation:
Allocative inefficiency occurs when the consumer does not pay an efficient price or a price that covers the cost of producing the goods and services. This assumes that the price charged to the consumer is enough to pay the marginal cost of production, no more no less. So if the producer charges price higher than marginal cost or lower than marginal cost, this is allocative inefficiency.
