Allocative Efficiency
What is allocative efficiency?
Allocative efficiency is when a country’s resources are distributed by the demands of consumers. An allocatively efficient market, in theory, is perfect as it produces the exact right kind of goods, in the exact right quantity, at the exact right price and ultimately delivers them to the exact right people.
Allocative efficiency is often demonstrated with simple supply and demand curves in elementary economics. In reality, no market achieves perfect allocative efficiency due to imperfect knowledge, externalities and other problems.