3.4.1 Efficiency Flashcards
What are the 4 types of efficiency?
- allocative efficiency
- productively efficient
- X efficiency
- dynamic effiecieny
What is allocative efficiency?
When resources following consumer demand, where society surplus is maximised and where net social benefit is maximised
-AR = MC (D&S)
What is productive efficieny?
When a firm is operating at the lowest points on their AC curve. They are exploiting all economies of scale
What is X efficiency?
When a business minimises waste, when a business operates on their AC curve
Why would a firm not always be X efficient?
- they are a monopoly so lacks a competitive drive
- public sector firms are not profit maximisers
What is dynamic efficiency?
When a firm re invests LR supernormal profits i.e. tech, factories. There needs to be long run supernormal profit
What is static efficiency?
efficiency that occurs at a single production point
- allocative
- productive
- X
Why is dynamic efficiency not static?
Because it happens over time
On a diagram, where would allocative efficiency lie?
Qa (when MC = AR)
On a diagram where would you find productively efficiency?
Qp (lowest point on the AC curve and the fully exploitation of economies of scale)
On a diagram where would you find X efficiency?
Any point along the AC curve
On a diagram where would you find dynamic efficiency?
Any point identifying supernormal profits in the long run
What is the consumer analysis for allocative efficiency?
- resources follow consumer demand
- low prices (consumer surplus)
- high choice
- high quality (it is competitive)
What is the producer analysis for allocative efficiency?
- retain market share
- increase profit as high quality brings consumer
What is the consumer analysis of productive efficiency?
- lower price is passed onto consumer
- high consumer surplus
