5 MOL! – Allocative Efficiency

If every point on the PPC is productive efficient, are all the points equally good?

ACOn the diagram, points B and C are productive efficient as all the resources are fully utilised. This doesn’t help answer the economic problem of what and how much to produce. Should the economy produce at point B, C or on some other point? Hence, another yardstick is required to measure the efficiency of the economy.

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Why economics?

They say that in life we are motivated by only two things – we either do things to seek pleasure or to avoid pain. Closely related to these are the values that we live for, which are things like passion, integrity, success, basically what I would call states of emotions that we think are highly important to us because achieving these states will give us utmost personal pleasure.

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