Theorem of the Allocative Efficiency

The Theorem of Allocative Efficiency states that resources in an economy are best used when goods and services are produced to match consumer preferences, meaning the right amount of each product is made for those who want it most. When markets operate perfectly, prices reflect how much people value different goods, guiding producers to supply exactly what consumers want. This balance ensures all available resources are utilized in the most beneficial way, maximizing total value or welfare for society. Essentially, it's about optimizing production so that no resources are wasted and everyone's needs are met efficiently.