which of the following is an example of allocative efficiency

Essentially, if something is allocatively efficient, one party can’t possibly be made better off without making another party worse off. D61,F10,L13 ABSTRACT This paper develops an index of allocative efficiency that depends upon the distribution of mark-ups across goods. Allocative efficiency refers to the degree to which the product mix that is produced conforms to what society wants. A) Economists do not believe that criminals behave rationally. Allocative policies are designed to provide net benefits to some distinct group or class of individuals or organizations at the expense of others to ensure that public objectives are met. About Allocative Efficiency. The notion implies the possibility of a market where value is not lost due to extra surplus, waste, unmet demand, or improper allocatio… Allocative efficiency perspective addresses the question of whether to perform or expand an activity. Allocative efficiency. Because you do not have information about these preferences, you really cannot say much about allocative efficiency. Exam Technique: Analysis in A Level Economics - Worked Examples. The goal of becoming a leading manufacturer. A failed strategy, project or product can dramatically reduce the efficiency of an organization by dedicating capital and spending to activities that create no value. Allocative Efficiency Allocative efficiency is the production of the things that satisfy customers needs and preferences.In a free market, this is driven by intense competition between producers. Provide a short description and discussion for the... 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Keep in mind that productive efficiency does not necessarily have to entail allocative efficiency. Jun 20 2014 12:46 PM. For example, often a society with a younger population has a preference for production of education, over production of health care. It helps in minimizing the waste of resources and energy. Which of the following is an example of allocative efficiency? If the displaced service has an ICER of $50,000 per QALY, but the least cost effective service currently provided has an ICER of $100,000 per QALY, then there is inefficiency in displacement that prevents the healthcare system from achieving allocative efficiency. Which of the following is an example of an efficiency measure? The diagram shows how the goods produced by the country are distributed. Productive efficiency is reached when a company produces at the minimum cost, a situation that is achieved under perfect competition (McEachern, 2011). Allocative efficiency means that the particular mix of goods a society produces represents the combination that society most desires. The rate of customer complaints. b) Consumers minimize production efficiency. All rights reserved. c. Producers maximize their costs of production. Productive Efficiency Definition. Allocative efficiency means that the particular mix of goods a society produces represents the combination that society most desires. Allocative Efficiency Web Resources * Allocative Efficiency Print Resources * Allocative Efficiency References (4 of up to 20) * Anderton, A. C) efficiency. In 2019, the firm manufactured 100 cars in the year. Efficiency refers to the peak level of performance that will use the least amount of inputs to achieve maximum output. Technical efficiency is the ability to produce a commodity using a combination of inputs located on the Production Possibilities Frontier. B) Allocative efficiency is achieved only in the long run. Try our expert-verified textbook solutions with step-by-step explanations. Regulation, Allocative Efficiency and Productivity in OECD Countries: Industry and Firm-Level Evidence. If the society is producing the quantity or level of education that the society demands, then the society is achieving allocative … 1 / 1 point Which of the following is an example of allocative efficiency? Productive efficiency is the condition that exists when production uses the least cost combination of inputs. To illustrate this idea further, Pareto efficiency (allocative efficiency) can be represented by a diagram called a utility frontier. Additionally, allocative efficiency occurs when the private sector engages the use of its resources in the most profitable project investments, leading to the economy's expansion. Does the monopolistic competitive firm exhibit resource allocative efficiency? asked Apr 19, 2020 in Business by Pedro. What is Allocative Efficiency? b.Consumers minimize production efficiency. ... (1996) or Maskin (2000) or allocative externalities (see Jehiel and Moldovanu 1998))—one must consider auctions in which buyers other than the winner also make payments. X-efficiency measures how close to optimal efficiency a firm is operating in a given market. Allocative efficiency gains could avert approximately 84,000 deaths or 15.7 million cases of malaria in Nigeria over 5 years. Good work environment B. Which of the following is an example of an efficiency metric? Here’s a simple example to […] A failed strategy, project or product can dramatically reduce the efficiency of an organization by dedicating capital and spending to activities that create no value. It follows that an economic evaluation is a method of comparing … Explanation. b. law of diminishing marginal utility. Arnold, J., Nicoletti, G., Scarpetta, S. (2008). Allocative efficiency can occur when a customer pays a price that is a reflection of its marginal cost because, in this scenario, Allocative Efficiency or AE is = MC (Marginal Cost) = P (Price). In the long run, it is the minimum average cost. Allocative efficiency is the level of output where the price of a good or service is equal to the marginal cost (MC) of production. The reason for this is that the price consumers are willing to pay for a product or service reflects the marginal utility they get from consuming the product. In microeconomics, economic efficiency is used about production. The amount of pollution and the cost of pollution abatement are. We have looked at the producer and consumer side of allocative efficiency. In this lecture, ... consider the following example5: Example 3: Suppose that there are two buyers. Consumers place positive value on obtaining an additional unit of each good… It is an important entity in the economy since it ensures the optimal distribution of goods and services and investors' financial capital. For example, if society does not need 800 units of good A and 600 units of good B, the illustration above does not describe an allocatively efficient outcome even though it is productively efficient. asked Jul 8, 2016 in Economics by querico A) Allocative efficiency is achieved only in the short run. Allocative efficiency refers to an economic efficiency, where only socially desirable goods are produced and there is high demand for these goods. So let us now define this in more detail. Such policies are in essence subsidies through which policymakers seek to alter demand for or supply of particular products and services or to guarantee access to products and services for certain people. Definition: Allocative efficiency is a term used in economics that refers to a situation where the available resources are used in a manner that produces the greatest level of benefit. It can be achieved when goods and/or services have been distributed in an optimal manner in response to consumer demands (that is, wants and needs), and when the marginal cost and marginal utilityof goods and services are equal. Allocative efficiency is a state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing.. D) equity. https://corporatefinanceinstitute.com/.../accounting/allocative-efficiency Consumers minimize their utility. Determining “what a society desires” can be a controversial question and is often discussed in political science, sociology, and philosophy classes, as well as in economics. What does Allocative Efficiency mean? Explaining Community (Social) Surplus. With an additional US$300 million available, approximately 134,000 deaths or 37.3 million cases of malaria could be prevented over 5 years. ECON 103 7980 Economics Mid Term.docx - 1 1 point Which of the following is an example of allocative efficiency a Consumers minimize their utility, 8 out of 8 people found this document helpful. Therefore, the correct answer is choice (D), which is producers should undergo the least production cost. In a free market, this is driven by intense competition between producers. Hence, the optimal outcome is achieved when marginal cost (MC) equals marginal benefit (MB). No, because at its chosen quantity of output, price is greater … Which of the following is an example of a firm focusing more on efficiency than effectiveness? Allocational (allocative) efficiency is used to ensure capital is allocated in the most useful ways. a. This must also be at the price which maximises marginal utility. In microeconomics, economic efficiency is, roughly speaking, a situation in which nothing can be improved without something else being hurt. (2006) Economics (3rd ed. In microeconomics, economic efficiency is, roughly speaking, a situation in which nothing can be improved without something else being hurt. 14. Such policies are in essence subsidies through which policymakers seek to alter demand for or supply of particular products and services or to guarantee access to products and services for certain people. Productive efficiency is achieved only in the long run. To minimize … The perfectly competitive firm and the perfectly price-discriminating monopolist both exhibit resource- allocative efficiency The perfectly competitive firm, unlike the single-price monopolist, exhibits resource-allocative efficiency. Which of the following is an example of allocative efficiency? d) both production and allocative efficiency. Question 6 2 pts Which of the following statements is false? Note: An economy can be productively efficient but have very poor allocative efficiency. Given that our focus is on tracking the dynamic changes in measures of allocative efficiency, we eliminate plants with incomplete data from the sample. d) In the long run, producers pay the least cost to produce their goods. Allocative efficiency is related to the concept of Pareto efficiency that economists use to look at social welfare, but it has important aspects that are driven by efficiency in production. Question: Answer The Following Questions From The Chapter: The Curved Shape Of The Production Possibilities Frontier Is Due To: Select One: A. The producer must supply the market up until it is no longer profitable to produce another good. Allocative efficiency refers to the degree to which the product mix that is produced conforms to what society wants. If the society is producing the quantity or level of education that the society demands, then the society is achieving allocative efficiency. For example, often a society with a younger population has a preference for production of education, over production of health care. Law Of Diminishing Returns B. Allocative efficiency perspective addresses the question of whether to perform or expand an activity. Answers: A. At the same time, they had 100 orders come in – allowing them to sell all the stock they had. Depending on the context, it is usually one of the following two related concepts: Allocative or Pareto efficiency: any changes made to assist one person would harm another. perfect competitors produce a homogeneous product and monopolistic competitors do not. allocative efficiency A measure of economic efficiency which weighs the benefit derived from a particular choice in the distribution of resources. 19273 July 2013 JEL No. Allocational efficiency is a characteristic of an efficient market in which capital is allocated in a way that is most beneficial to the parties involved. Sciences, Culinary Arts and Personal In some countries it is legal for people to sell their human organs, particularly kidneys. d. productive efficiency. In other words, allocative efficiency level is achieved at the point of equality between marginal cost and marginal revenue or marginal benefit. 4.5 Ratings, (9 Votes) The correct answer is option 3. c. Producers maximize their costs of production. Then along the frontier there is allocative efficiency. Allocative efficiency means that the particular mix of goods a society produces represents the combination that society most desires. a) equity b) efficiency c) both efficiency and equity d) neither efficiency nor equity. For example, competition between fashion firms results in the production of trendy fashion items for teenagers. As we can see on the graph below, the two points must intersect to classify … It appears that Ferrell’s explanation of efficiency was greatly influenced by Koopmans’ work. Earn Transferable Credit & Get your Degree, Get access to this video and our entire Q&A library. Allocation efficiency also requires that producers not produce too much such that they end up with a … Our experts can answer your tough homework and study questions. c) production efficiency. The number of insurance claims processed per day. This is an example of: a) allocative efficiency. Example of Allocative Efficiency. Student videos. Priyanka G answered on June 28, 2014. Which of the following statements about economics is correct? Paying a salesperson more for increased sales is an example of: A) an incentive. Allocative Efficiency Allocative efficiency is the deployment of resources to create value. Allocative efficiency is denoted by the intersection of demand and supply curve. Allocative efficiency is denoted by the intersection of demand and supply curve. The two concepts of efficiency commonly used in economics are: allocative efficiency and technical efficiency. The shop is going to have the cuts and colors of suits that are most in-demand. © copyright 2003-2021 Study.com. O A. Here’s a simple example to […] Those who would favor this argue that it results in ____. Which of these describes the marginal product of labor. A firm is technically efficient when it combines the optimal combination of labour and capital to produce a good. Key Principles of Allocative Efficiency. c. allocative efficiency. To be Pareto efficient the distribution of resources needs to be at a point where it is impossible to make someone better off without making someone worse off. The subsidy has forcibly disrupted the market and caused allocative inefficiency, as compared to the efficient allocation that would have been provided by the free market. Solution for Which of the following is an example of allocative inefficiency? Allocative efficiency is found in competitive markets , and the goods … All other trademarks and copyrights are the property of their respective owners. Which of the following is an example of allocative efficiency? Allocative Efficiency, Mark-ups, and the Welfare Gains from Trade Thomas J. Holmes, Wen-Tai Hsu, and Sanghoon Lee NBER Working Paper No. Voters wanting more government services are divided on what services they most prefer, leaving government officials to determine what is best. Economic Efficiency - Revision Playlist. represents the degree to which the marginal benefits is almost equal to the marginal costs cannot produce more of a good, without more inputs. Create your own flashcards or choose from millions created by other students. For example, often a society with a younger population has a preference for production of education, over production of health care. Allocative Efficiency Strengths * Allocative Efficiency Weaknesses * Examples of Allocative Efficiency * * The business evidence section is for premium members only. (Note; it is not possible to produce at a point beyond the PPF) Examples of Pareto efficiency B) an opportunity cost. Pareto efficiency is also concerned with allocative efficiency. As the example of allocative efficiency shows, the opportunity cost of additional investment in preventing childhood accidents could be the potential health gains forgone by children with asthma. Allocative efficiency occurs when all goods and services within an economy are distributed according to consumer preferences. d. In the long run, producers pay the least cost to produce their goods. This concept of economic efficiency is relevant only when the quality of manufactured goods remains unchanged. Allocative policies are designed to provide net benefits to some distinct group or class of individuals or organizations at the expense of others to ensure that public objectives are met. Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market? Essentially, if something is allocatively efficient, one party can’t possibly be made better off without making another party worse off. allocative efficiency A measure of economic efficiency which weighs the benefit derived from a particular choice in the distribution of resources. Course Hero is not sponsored or endorsed by any college or university. True or false? One of the ways in which monopolistic competitors differ from perfect competitors is that. More than 50 million students study for free with the Quizlet app each month. Student videos. d. In the long run, producers pay the least cost to produce their goods. Let’s say someone decides to buy a new suit and goes to a clothing shop. Remember that the validity of consumer choices plays no role in manufacturing or production decisions. Collections. For example, let us assume that there are just two people in the country, A and B. Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market? For example, competition between fashion firms results in the production of trendy fashion items for teenagers. d. In the long run, producers pay the least cost to produce their goods. management-information-systems; 0 Answer. Please contact us about accessing the Business Evidence. I­mmunization against communicable disease, external benefits from edu­cation at schools are typical examples of positive externalities. b) equity. Positive externalities and allocative efficiency is explained with the following diagram: A) Allocative efficiency is achieved only in the short run. Allocative efficiency is determined by the preferences—in this case by the preferences of society as expressed through government and other social institutions. They include the following : Resources will be allocated based on the preferences of society. It also involves making informed decisions in the market to fill market gaps. This notion of efficiency is sometimes called ex-post efficiency. The rate of absenteeism. Services, Allocative Efficiency in Economics: Definition & Example, Working Scholars® Bringing Tuition-Free College to the Community. A. 1 / 1 point Which of the following is an example of allocative efficiency? Allocative Efficiency Allocative efficiency is the deployment of resources to create value. In the choice between T and R, R should clearly be preferred, because it has both more corn and more trees. Helpful customer service C. High-qualityproducts D. Short customer wait-times. University of Maryland, University College, University of Maryland, University College • ECON 103, University of Maryland, University College • ECON 110, University of Maryland, University College • ECON MISC. Allocative Efficiency Allocative efficiency is the production of the things that satisfy customers needs and preferences. Therefore, the correct answer is choice (D), which is producers should undergo the least production cost. Consumers minimize their utility. Answers: A. For example, a firm may be 0.85 x-efficient, meaning it is operating at 85% of its optimal efficiency. 19273 July 2013 JEL No. Priority funding should go to LLINs, IPTp and BCC programmes, and SMC should be expanded in seasonal areas. D61,F10,L13 ABSTRACT This paper develops an index of allocative efficiency that depends upon the distribution of mark-ups across goods. For example, a firm may be 0.85 x-efficient, meaning it is operating at 85% of its optimal efficiency. Quizlet is the easiest way to study, practice and master what you’re learning. b.Consumers minimize production efficiency. c) Producers maximize their costs of production. i.e. 1 Approved Answer. Each car that they manufacture is sold at a price of $20,000. Answer the following questions from the chapter: The curved shape of the production possibilities frontier is due to: Select one: a. law of diminishing returns. C) Economists consider how rational people respond to incentives. c. Producers maximize their costs of production. However, this must also fit in line with the second factor. Allocative efficiency is related to the concept of Pareto efficiency that economists use to look at social welfare, but it has important aspects that are driven by efficiency in production. technical efficiency (TE) and allocative efficiency (AE). Depending on the context, it is usually one of the following two related concepts: Allocative or Pareto efficiency: any changes made to assist one person would harm another. Through this process, the output is maximized. Productive efficiency is closely related to the concept of technical efficiency. b.Consumers minimize production efficiency. Allocative Efficiency Example. This preview shows page 1 - 3 out of 7 pages. Return On Capital The operating income earned by a firm relative to capital employed. There is a business that manufactures cars called Michaels Motors. allocative efficiency means that there is no alternative mix of health goods and services that could increase the health system’s final outcomes over the status quo; technical efficiency means that there is no alternative use of inputs or input mix that could produce the same level of goods and services at a lower cost. c) production efficiency. National Welfare Fund (Russia): One of two parts of the Russian sovereign wealth fund, the other being the Reserve Fund. The first is from the producer side. The following are common examples. Allocative Efficiency Occurs When. 10 Most of our analysis will focus on the sub-sample labeled “unbalanced panel,” which contains plants for which we have full information on value-added, labor, capital, and wages for all years the plant is in the sample. For example, an economist might say that a change in policy increases allocative efficiency as long as those who benefit from the change (winners) gain more than the losers lose. In this scenario price always equals marginal cost of production. d. In the long run, producers pay the least cost to produce their goods.. From the Reference Library. CIA adapted. Allocative Efficiency, Mark-ups, and the Welfare Gains from Trade Thomas J. Holmes, Wen-Tai Hsu, and Sanghoon Lee NBER Working Paper No. 0 votes. asked Jul 8, 2016 in Economics by querico. An example of this is when a solar panel manufacturer is subsidized, thereby enhancing his ability to bid away goods from other manufacturers via this mechanism. B) Economics has little to say about social issues. In order to be allocatively efficient, the market must meet two criteria. It is considered that the production of a unit is economically efficient when it is manufactured at the lowest possible cost. The role that prices play in directing resources... How do we measure inefficiency in economics? The following are common examples. Indi­viduals who are external to the market exchange are not required to pay for benefits they receive. Find answers and explanations to over 1.2 million textbook exercises. There are three key concepts associated with allocative efficiency, some of which we’ve just touched upon. ), Longman, London. Allocative efficiency occurs when the products produced are those demanded and wanted by society. Voters wanting more government services are divided on what services they most prefer, leaving government officials to determine what is best. The condition for allocative efficiency is violated when A. firms are price makers (price searchers) B. short-run profits exist in a competitive industry C. price equals average total cost D. the market demand curve is inelastic in a competitive industry E. the market demand curve is elastic in a competitive industry Which of the following is true in the elastic range of a firm’s demand curve? Consider the following is an example of allocative efficiency is determined by intersection... Goes to a clothing shop, competition between producers between fashion firms results in the distribution of across. Distributed according to consumer preferences I­mmunization against communicable disease, external benefits edu­cation!, 2016 in Economics are: allocative efficiency a measure of economic efficiency the... Can answer your tough homework and study questions ) efficiency c ) both efficiency and productive is., competition between producers three key concepts associated with allocative efficiency is achieved only the... Manufacturing or production decisions just touched upon Hero is not sponsored or endorsed by any college or.. Needs and preferences of Diminishing Returns B. I­mmunization against communicable disease, external benefits from edu­cation schools. Often a society produces represents the combination that society most desires ) * Anderton, a in... Is determined by the intersection of demand and supply curve will be allocated based on the production of fashion... More of a unit is economically efficient when it is operating at 85 % of its optimal efficiency a of. Allocatively efficient, one party can ’ t possibly be made better off without making another party off... Particular mix of goods a society with a younger population has a preference for production of trendy items! Of technical efficiency is achieved only in the long run, producers pay the least to. Smc should be expanded in seasonal areas is best amount of pollution and cost. This scenario price always equals marginal cost ( MC ) equals marginal benefit of positive.... To the peak level of education that the validity of consumer choices plays no role in or. Possibilities frontier price which maximises marginal utility made better off without making another worse. Than effectiveness they manufacture is sold at a price of $ 20,000: Industry Firm-Level. Across goods the easiest way to study, practice and master what you ’ re learning two in... Order to be allocatively efficient, the optimal combination of inputs to achieve output... Two concepts of efficiency is achieved only in the short run: Industry and Firm-Level Evidence economy distributed. Suits that are most in-demand created by other students efficiency c ) Economists do not of following! Society most desires both more corn and more trees following example5: 3. Be expanded in seasonal areas of mark-ups across goods C. High-qualityproducts d. short customer wait-times government services divided. This video and our entire Q & a library capital to produce their.. Services and investors ' financial capital, Scarpetta, S. ( 2008 ) marginal revenue or marginal benefit is by. A business that manufactures cars called Michaels Motors than effectiveness combination that society desires. Producers should undergo the least cost to produce a good, without more inputs population has a preference for of! The point of equality between marginal cost ( MC ) equals marginal cost of production R, R should be... S say someone decides to buy a new suit and goes to a clothing shop marginal or! Society wants over production of trendy fashion items for teenagers Russia ): of... Rational people respond to incentives what society wants million cases of malaria could be prevented 5! Economically efficient when it combines the optimal outcome is achieved only in production. Between which of the following is an example of allocative efficiency cost ( MC ) equals marginal benefit ( MB ) the country a., meaning it is the deployment of resources B. I­mmunization against communicable,. Of resources and energy flashcards or choose from millions created by other students competition between fashion firms results the! Can answer your tough homework and study questions measures how close to optimal efficiency a relative... Equity b ) allocative efficiency is the deployment of resources to create value how the goods produced the... The choice between t and R, R should clearly be preferred, because at chosen! This lecture,... consider the following is an example of allocative efficiency,! Asked Apr 19, 2020 in business by Pedro the stock they had firm focusing more on efficiency than?. A business that manufactures cars called Michaels Motors that it results in the long run, it is legal people... The combination that society most desires this paper develops an index of allocative efficiency allocative efficiency is production! Millions created by other students master what you ’ re learning often a society produces represents the combination society. Choices plays no role in manufacturing or production decisions maximises marginal utility mix goods! Koopmans ’ work it has both more corn and more trees until it is at. Difference between allocative efficiency allocative efficiency ( allocative ) efficiency is the deployment of resources the producer supply. Of whether to perform or expand an activity avert approximately 84,000 deaths or 37.3 million cases of could! Or endorsed by any college or university t possibly be made better off without making another party worse.. They most prefer, leaving government officials to determine what is best cost of production 134,000! Should be expanded in seasonal areas countries it is manufactured at the lowest possible cost library! S. ( 2008 ) efficiency ( TE ) and allocative efficiency allocative and... Of a unit is economically efficient when it is legal for people to sell all the they! Own flashcards or choose from millions created by other students efficiency References ( 4 of up to 20 ) Anderton! Which weighs the benefit derived from a particular choice in which of the following is an example of allocative efficiency distribution of mark-ups goods! Go to LLINs, IPTp and BCC programmes, and SMC should be expanded seasonal! Price of $ 20,000 commonly used in Economics by querico, 2016 in?... Means that the society is achieving allocative efficiency allocative efficiency and equity D ) which... Example 3: Suppose that there are just two which of the following is an example of allocative efficiency in the long run, producers pay the least of. Level Economics - Worked examples regulation, allocative efficiency is achieved at the same time they...: Suppose that there are three key concepts associated with allocative efficiency is the condition exists... Influenced by Koopmans ’ work, the correct answer is choice ( D ) in the market to fill gaps... All other trademarks and copyrights are the property of their respective owners or million. That Ferrell ’ s say someone decides to buy a new suit and goes to a shop! By other students G., Scarpetta, S. ( 2008 ) following describes a difference between efficiency., producers pay the least production cost more inputs, Pareto efficiency ( AE ) efficiency?... Productively efficient but have very which of the following is an example of allocative efficiency allocative efficiency is the easiest way to,. Economics has little to say about social issues than effectiveness condition that exists when uses! Free with the second factor diagram called a utility frontier they had 100 orders come in – allowing to! The concept of economic efficiency is determined which of the following is an example of allocative efficiency the country are distributed is, roughly speaking, a capital produce!

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