Which of the following best describes allocative efficiency in the allocation of resources?

• A. Resources are distributed to produce the combination of goods and services most desired by society.
• B. Resources are allocated randomly among all possible uses.
• C. Resources are allocated so that every individual receives an equal share.
• D. Resources are used to produce goods at the lowest possible cost, regardless of consumer preferences.

Answer: (A)

Verified step by step guidance

1. Understand that allocative efficiency occurs when resources are distributed in a way that maximizes the overall satisfaction or welfare of society, meaning the goods and services produced are those most desired by consumers.
2. Recall that allocative efficiency is different from productive efficiency, which focuses on producing goods at the lowest possible cost without considering consumer preferences.
3. Recognize that random allocation of resources or equal distribution to individuals does not necessarily lead to allocative efficiency because these methods do not consider what society values most.
4. Identify that the key characteristic of allocative efficiency is producing the combination of goods and services that reflects consumer preferences and maximizes societal welfare.
5. Conclude that the best description of allocative efficiency is: 'Resources are distributed to produce the combination of goods and services most desired by society.'