3.0 Allocative Efficiency

So far, we specifically looked at the market from the construction of new housing perspective. Consider from now on the market for all housing (Construction of new Houses, new Multi-Unit Apartment and Townhouse Construction and Established Homes).

3.1 Briefly define allocative efficiency. Identify and explain two sources of allocative inefficiency in the housing

market.

3.2 Select one of the two sources of allocative inefficiency you identified in 3.1 above, and briefly analyse one

policy action the government and /or another organisation can take to improve allocative efficiency. Will this

policy significantly reduce prices and improve allocative efficiency? Discuss.