Talk:Allocative efficiency

spelling

"Maximises" in the definition of Allocative Efficiency is spelled incorrectly. It should be "maximizes".

It all depends where you're from... Lachambre (talk) 14:58, 24 February 2009 (UTC)

imperfections

I'm not sure I agree with this bit:

"An allocatively efficient market is therefore one which has no imperfections."

It is true that a perfectly competitive market (with no imperfections) will be allocatively efficient (in the long run). However, a market with imperfections can be made allocatively efficient i.e. it is possible to correct market failure. In such cases where market failure has been corrected, I would still not judge the market to be free of imperfections, but I would say that it is allocatively efficient.

Also, I would not totally agree with the explanation: "That is to say, in a situation where society produces goods and services at minimum cost that are wanted by consumers, the market is allocatively efficient." That fails to take account of externalities, etc. Although that is covered later on in the article, I feel a better way of explaining allocative efficiency would be in terms of marginal benefit and marginal (opportunity) cost to society. At the output where marginal benefit to society equals marginal (opportunity) cost to society, the market is allocatively efficient since net benefit to society is maximised.

For a firm in a perfect market, demand / price equals the marginal benefit to society, marginal cost equals the marginal (opportunity) cost to society, therefore P=MC is allocatively efficient. Externalities and whatnot cause demand NOT to equal marginal benefit to society, or supply (in the market, marginal costs for the firm) NOT to equal marginal (opportunity) cost to society, or both, resulting in an output which is not allocatively efficient.

I would also argue that Pareto efficiency is NOT allocative efficiency. To be Pareto efficient, you cannot make somebody better off without making somebody else worse off. Allocative efficiency doesn't really care about the individual - it only cares about the NET benefit to society. Mike Williamson 00:46, 25 December 2006 (UTC)

It has not been mentioned that allocative efficiency occurs when the Price= Marginal Costs —Preceding unsigned comment added by 91.104.123.215 (talk) 19:42, 26 November 2009 (UTC)

External Link

The external link is no longer active. If someone could put up a good link that works that would be great. —Preceding unsigned comment added by 82.44.68.228 (talk) 22:58, 7 February 2008 (UTC)

Strange claim

The article contains the following paragraph:

It is possible to have Pareto efficiency without allocative efficiency. By shifting resources in the economy, a gain in benefit to one individual could be greater than the loss in benefit to another individual (see Kaldor-Hicks efficiency). Therefore, before such a shift, the market is not allocatively efficient, but might be Pareto efficient.

This seems wrong. It seems to be saying: imagine there's state x, which is KH efficient but not Pareto efficient. By the definition of KH efficiency., there's some state, y, that's Pareto efficient and could be reached by some party in x compensating the other. Then, it seems to say that x (i.e., the situation before the transfer to y) is Pareto efficient (contrary to supposition), but not allocatively efficient.

It seems to be assuming that KH efficiency is a kind of Pareto efficiency. (Otherwise the last sentence makes no sense.) But that makes no sense given the definition of KH efficiency.128.91.19.31 (talk) 16:53, 21 September 2015 (UTC)