Allocative

Allocative is an adjective used to describe decisions or outcomes that relate to the distribution of scarce resources among alternative uses. In economics, it is most often discussed in the context of allocative efficiency, a state in which the mix of goods and services produced and consumed is the one most valued by society, given available technology and resources.

In a perfectly competitive market, allocative efficiency occurs when the price of a good equals its marginal cost (P = MC). At this point, resources are not more valuable if redirected to another use, and any reallocation would lower overall welfare. When prices do not reflect marginal social benefits and costs—due to externalities, information gaps, or public goods—markets can fail to achieve allocative efficiency.

An important distinction is between allocative efficiency and productive efficiency. Productive efficiency concerns producing goods at the lowest possible cost, while allocative efficiency concerns the social value of the produced output. Policy instruments such as taxes, subsidies, regulation, property rights, or information provision are often discussed as means to restore allocative efficiency when markets underperform due to market failures or externalities.

Allocative is also used in broader resource-planning contexts, including public budgeting and management sciences, to describe decision frameworks that aim to allocate scarce resources in line with stated objectives.