In order to satisfy as many wants as possible, it is necessary to achieve allocative efficiency, which means:

• A. resources are distributed so that the mix of goods and services produced matches consumer preferences
• B. goods are produced at the lowest possible cost
• C. all firms in the market earn zero economic profit
• D. income is distributed equally among all members of society

Answer: (A)

Verified step by step guidance

1. Understand the concept of allocative efficiency: it occurs when resources are allocated in a way that maximizes the satisfaction of consumer preferences.
2. Recognize that allocative efficiency means producing the combination of goods and services that consumers value most, reflecting their preferences and willingness to pay.
3. Differentiate allocative efficiency from productive efficiency, which focuses on producing goods at the lowest possible cost, regardless of consumer preferences.
4. Note that zero economic profit and equal income distribution are not conditions for allocative efficiency; they relate to other economic concepts such as long-run equilibrium and equity.
5. Conclude that allocative efficiency is achieved when the mix of goods and services produced matches consumer preferences, ensuring resources are used where they are most valued.