A Level Economics AQA Practice Exam

What demonstrates allocative efficiency?

1. The equal distribution of resources in an economy

2. Producing goods that society most desires at an optimal cost

3. Maximizing the use of scarce resources for production

4. Maintaining the lowest production costs possible

The correct answer is: Producing goods that society most desires at an optimal cost

Allocative efficiency is achieved when resources are distributed in a way that maximizes the overall satisfaction of society's wants and needs. This concept revolves around producing the goods and services that society most desires, ensuring that they are produced at an optimal cost. When an economy operates at allocative efficiency, it implies that the marginal cost of producing a good or service is equal to the marginal benefit derived from it by consumers. Thus, answer B accurately reflects this understanding. The other choices represent different economic concepts. The equal distribution of resources addresses equity rather than efficiency. Maximizing the use of scarce resources pertains to productive efficiency, which focuses on the optimal use of resources in production rather than their distribution based on societal needs. Maintaining the lowest production costs relates to cost minimization, which is a component of productive efficiency but does not necessarily ensure that the production aligns with what society values most. Therefore, the focus of answer B on producing goods that society desires at an optimal cost perfectly encapsulates the essence of allocative efficiency.