A Level Economics AQA Practice Exam

What is meant by misallocation of resources?

1. Goods are consumed by those who value them least

2. Goods are wasted in production

3. Goods are not allocated according to consumer preferences

4. Goods are not produced at the lowest cost

The correct answer is: Goods are consumed by those who value them least

The concept of misallocation of resources occurs when resources are not utilized in a manner that maximizes their potential benefits to society. When goods are consumed by those who value them least, it indicates that there is a disconnect between the distribution of resources and the preferences of consumers. In this situation, the consumers who value the goods less are making choices that do not reflect the highest utility possible from those goods. For example, if a concert ticket is purchased by someone who values it at $10, while another person would be willing to pay $50 for it, the resources (in this case, the concert ticket) could have been better allocated to the individual who values it more. This misalignment represents a failure to match resources effectively with consumer preferences, resulting in an inefficient allocation that doesn’t maximize overall satisfaction or welfare in the economy. The other options address different aspects of resource utilization: wasting goods in production refers to inefficiencies in the production process; not allocating goods according to consumer preferences implies a broader failure but does not specifically define the lowest value consumption; and not producing goods at the lowest cost focuses on production efficiency rather than consumer valuation. While these concepts are related to resource allocation, they do not capture the essence of misallocating resources in the