So now let's talk about this other type of efficiency, allocative efficiency. And this is where production represents consumer preferences. Okay? So before we were talking about making the most with what we had, this is more about making the correct mix of stuff based on our consumers. Right? It's a bit more subjective. You can't be expected to just know what the consumers want. This is the kind of information that's going to be given to you on the test, and then you'll have to find the point of allocative efficiency or something like that.

As an example here on our graph, let's talk about a couple of different schools and their allocative efficiency point, right? Maybe you're at a school like FSU. Big party school, right, loves their cheap beer. Right? And they might find that their most allocatively efficient point on the graph might be somewhere around up here. Right? Point A on the graph. Lots of light beer, lots of cheap beer, no pizza. Pizza is not a worry. They don't need sustenance. They can get by just on the beer here. So, FSU, let's put something like lots of beer, no pizza. So their allocated efficiency point would be somewhere around point A, right? They're still productively efficient but they're just making the right stuff for their consumers.

What if you're at a school like NYU where they have really good pizza,, oh, well, I put deep-dish pizza. So this should really be some kind of Chicago school. So let's say you're at the University of Illinois in Chicago, right, and you still like beer. Right? You still need your cheap beer because you're in college. You can't afford the good stuff, but you still need pizza too. Right? You've got that really good pizza, so your allocative efficiency point might be somewhere here in the middle where you're getting some pizza and some beer, right? So let's write that in here. Some pizza, some beer, point B.

So both of these points reach allocative efficiency. Here, sorry. Let me get out of the way there. Both of these points do reach allocative efficiency. It's just a matter of consumer preference. Right? What do the consumers want? And that's what we're going to produce. So why don't we move on to the next video?