Allocative efficiency occurs when:

• A. the government sets prices to maximize total revenue
• B. goods are produced at the lowest possible cost
• C. resources are distributed so that the value consumers place on a good equals the cost of resources used to produce it
• D. income is distributed equally among all members of society

Answer: (C)

Verified step by step guidance

1. Understand the concept of allocative efficiency: it occurs when resources are distributed in a way that maximizes the overall benefit to society.
2. Recall that allocative efficiency is achieved when the value consumers place on a good (measured by their willingness to pay) equals the cost of the resources used to produce that good.
3. Express this condition mathematically as: \(\text{Price} = \text{Marginal Cost}\), where price reflects the consumer's valuation and marginal cost reflects the resource cost.
4. Recognize that this equality ensures that the quantity of goods produced is socially optimal—no more or less than what consumers value at the cost of production.
5. Note that other options like maximizing government revenue, producing at lowest cost (productive efficiency), or equal income distribution do not define allocative efficiency.