Which of the following will be accomplished by efficient allocations of the factors of production
Correct Answer
The production of the maximum amount of goods and services possible from a given set of resources.
Explanation
Efficient allocation of the factors of production—land, labor, capital, and entrepreneurship—is the cornerstone of productive efficiency. An economy achieves this state when it produces the greatest possible output from its available inputs, meaning no resources are wasted or underutilized. This accomplishment can be understood through three interrelated effects.
First, it ensures the maximization of output. Imagine an economy’s potential represented by its Production Possibilities Frontier (PPF), a curve showing the maximum combinations of two goods that can be produced with available resources and technology. An efficient allocation of factors places the economy on this curve, not inside it. Any point inside the PPF signifies inefficiency, such as unemployed workers or idle factories, where more of one or both goods could be produced by putting those resources to work. By achieving an efficient allocation, an economy fully harnesses its productive capacity.
Second, productive efficiency implies the minimization of cost. For any given level of output, an efficient allocation ensures that it is being produced using the least-cost combination of inputs. Firms are incentivized by competition and the profit motive to arrange their production processes to avoid waste, thereby lowering their operational costs. These cost savings can then be passed on to consumers through lower prices, increasing overall economic welfare.
Finally, it is crucial to distinguish productive efficiency from allocative efficiency. While productive efficiency is about producing goods “right” (at the lowest cost), allocative efficiency is about producing the “right” goods—the specific mix of products and services that society most values. An economy could be productively efficient in making only left shoes, but this would not be allocatively efficient. Therefore, while the efficient allocation of factors accomplishes the vital goal of maximizing potential output, achieving optimal societal well-being requires combining this with the production of the goods most desired by the population.
