Allocative policy aims to:

• A. Increase overall production in the economy.
• B. Redistribute income to the wealthy.
• C. Reallocate resources because some goods and services are underprovided by the market.
• D. Control inflation by changing interest rates.

Answer: (C)

Allocative policy is about matching resources to what people value and fixing situations where the market doesn’t provide enough of certain goods and services. When markets underprovide things like public goods, healthcare, or education, the government can shift resources through policies, funding, subsidies, or regulations to improve the overall mix of goods produced. That reallocation aims to raise welfare by ensuring society gets more of the things it values, rather than simply producing more overall.

Increasing overall production focuses on the total amount produced, not on the mix of what’s produced. Redistributing income to the wealthy is about equity, not the allocation of goods and services. Controlling inflation by changing interest rates is a monetary policy tool, not an allocative policy aimed at the market’s production mix.