ECO 211 Chapter Notes - Chapter 5: Economic Surplus, Marginal Utility, Allocative Efficiency
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ECO 211 Full Course Notes
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According to economists, allocative efficiency means the resources have been used to produce the goods and services that people value the most. Marginal benefit is the benefit that a person receives from consuming one more unit of a good or service measured as the maximum amount that a person is willing to give up for one additional unit. Principle of decreasing marginal benefit marginal benefit decreases as consumption increases. Marginal cost is the opportunity cost of producing one more unit of a good or service. measured as the value of the best alternative foregone. Principle of increasing marginal cost marginal cost increases as the quantity produced increases. Allocative efficiency depends upon a comparison of marginal cost and marginal benefit. Efficiency and inefficiency marginal benefit exceeds marginal cost marginal cost exceeds marginal benefit marginal benefit equals marginal cost. Value of an item is the same thing as its marginal benefit.
