3.4.1: Efficiency Flashcards
What is efficiency?
How well the market allocates resources, using the least amount of inputs to achieve the highest number of outputs.
What are the four types of efficiency/inefficiency?
-Allocative efficiency.
-Productive efficiency.`
-Dynamic efficiency.
-X-Inefficiency.
What is allocative efficiency?
When resources are used to produce goods/services that consumers want and value the most, maximising utility.
(Where P = MC).
What is productive efficiency?
When products are produced at the lowest average cost to minimise wastage when producing each product.
(All points on the PPF are productively efficient).
What are allocative efficiency and dynamic efficiency examples of?
Static efficiency.
What is dynamic efficiency?
When resources are allocated efficiently over a period of time.
What methods result in dynamic efficiency?
-Product innovation (small scale, frequent changes to the performance of a good/service).
-Process innovation (changes in business models, production process and pricing strategies).
What is X-Inefficiency?
When a firm is not producing at the lowest possible cost for a given level of output.
Just because a market is ________, doesn’t mean it has a ________ ________ distribution of resources.
Efficient, socially desirable.
Efficiency and ________ contribute to the level of ________ welfare.
Equity, economic.
What do PPFs:
-Show?
-Not show?
PPFs:
-Show productive efficiency.
-Don’t show people’s desires.
