Allocative efficiency occurs when an industry provides the greatest amount of consumer satisfaction that is possible given the available resources. Allocative efficiency is possible only in perfect competition.
This is true because perfect competition is the only market structure in which firms produce at a price where there is no economic profit. In other structures, this does not happen. In those other market structures, economic profit is taken, too few goods are produced, and too high of a price is charged.
So, in perfect competition, firms can enter the market and drive prices down and production up to the point where allocative efficiency is achieved.
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