Which of the following is the consequence when the allocative function is performed?
Statement 1: The rate of return offered to the household would be less.
Statement 2: Scarce resources are allocated to those firms which have the lowest productivity for the economy.
Answer & explanation
Correct answer: option 4
When the allocative function is performed well, two consequences follow:
- The rate of return offered to households would be higher.
- Scarce resources are allocated to those firms which have the highest productivity for the economy.