3.4 Market structures

Question 1

Define economic efficiency

Answer 1

A society making optimal use of scarce resources to help satisfy our changing wants and needs

Question 2

Define productive efficiency

Answer 2

• Level of ouput where MC=AC
• AC are minimised
• NO wastage of scarce resources and a high level of factor productivity

Question 3

Define allocative efficiency

Answer 3

• Maximisation of society surplus- CS+PS (D=S)
• Maximisation of net social benefit (MSB=MSC)
• Where resources perfectly folllow conusmer demand (D=S)

Question 4

Where is allocative efficiency on a graph

Answer 4

Level of ouput where AR=MC (P=MC)

Question 5

Define X-inefficiency

Answer 5

Occurs when a firm isnt operating at its lowest average cost as there are no incentives for it to do this

Question 6

Define static efficiency

Answer 6

Occurs when all resources are being used in an efficient manner at a point in time.

Question 7

Define dynamic efficiency

Answer 7

Occurs where firms improve technology and production of a given period of time

Question 8

Whats the difference between static efficiency and dynamic efficiency

Answer 8

Statics efficiency exists at a point in time. (allocative, productive and x efficiency)
Dynamic efficiency is concerned with how resources are allocated over a given period of time.