3.4 Market Structures

Question 1

Efficiency

Answer 1

Used to judge how well market allocates resources, and relationship between scarce inputs and outputs

Allocative Efficiency
Productive Efficiency
Dynamic Efficiency
X-Inefficiency

Question 2

Allocative Efficiency

Answer 2

Achieved when resources are used to produce goods and services which consumers want and value most highly and social welfare is maximised
Occur when the value to society from consumption is equal to the marginal cost of production, P=MC
Example of static efficiency

Question 3

Productive Efficiency

Answer 3

Occurs at lowest cost per unit of output or lowest point of AC curve
Minimum resources used to produce maximum output
Firm is producing as much as possible relative to inputs
It is where MC = AC
Example of static efficiency

Question 4

Dynamic Efficiency

Answer 4

Looks at how changes in technology and productive techniques over time increase productive potential of firm

Question 5

X-Inefficiency

Answer 5

If a firm fails to minimise its AC at a given level of output, it is X-inefficiency and there is organisational slack
Specific type of productive inefficiency as it occurs when they fail to minimise their cost for that specific output
Often occurs where there is a lack of competition so firms have little incentive to cut costs