3.4.1 - Efficiency Flashcards
What is efficiency ?
Efficiency is concerned with how well resources, such as time, talents or materials, are used to produce an end result.
What is productive efficiency ?
Maximisation of output at the lowest possible AC
Full exploitation of economies scale, maximum output at the lowest possible AC
On a LRAC graph where is productive efficiency ?
The minimum point of the LRAC curve
Consumer analysis of productive efficiency
Lower prices for consumers
Higher consumer surplus
Full exploitation of economies of scale
Producer analysis of productive efficiency
More production at lower AC
Higher profit
Lower prices and greater market share
Definition of allocative efficiency
Where demand = supply in a market
At that point society surplus is being maximised, we cant do any better than this when it comes to allocating resources
Where is allocative efficiency on a graph ?
AR = MC on a business diagram
Consumer analysis of allocative efficiency
Resources are following consumer demand, they are getting what they want
Lower prices
Maximisation of consumer surpluses
High choice
High quality
Producer analysis of allocative efficiency
Retain or increase market share
Stay ahead of rivals
Increase profits
Definition of dynamic efficiency
Re investment of SNP into innovation, R+D and new technology to lower LRAC over time
Consumer analysis of dynamic efficiency
New innovation leads to new products
We get lower prices over time, new production techniques and machinery etc
High consumer surpluses
Producer analysis of dynamic efficiency
LR profit maximisations
Lower costs over time, good for business, allows them to keep prices low and keep profit higher over time
Retain/increase market share
Stay ahead of rivals
Definition of X - efficiency
Production with no waste
No excess costs above AC
Where is X efficiency on the AC curve ?
Producing anywhere on the AC curve
Consumer analysis of X efficiency
Low prices
Higher consumer surplus
