3.4.1- Efficiency Flashcards
1
Q
What is efficiency?
A
- Minimising waste, effort and/ or energy
2
Q
What are the four types of efficiency?
A
- Allocative Efficiency
- Productive Efficiency
- Dynamic Efficiency
- X-Inefficiency
3
Q
What is allocative efficiency?
A
- With allocative efficiency, scarce resources are used to produce the goods and services that consumers actually demand.
4
Q
When does allocative efficiency occur?
A
- Quantity supplied must be equal to the quantity demanded; when the market functions at the equilibrium point.
- It will occur when the is equal to marginal cost of production, where P=MC
5
Q
When does allocative efficiency occur in terms of society?
A
- Maximisation of Society Surplus (sum of CS and PS)
- Maximisation of Net Social Benefit MSB=MSC
- Where resources perfectly follow consumer demand
6
Q
When does productive efficiency occur?
A
- Exists when production is achieved at the lowest average cost.
- Therefore, the fewest resources are used to produce each product.
7
Q
Where does the firm operate for productive efficiency?
A
- When production is at the lowest point on the AC curve; lowest average cost.
- Exists when there is full exploitation of economies of scale.
8
Q
When does static efficiency occur?
A
- Occurs at a point in time and focuses on how much output can be produced from a given stock of resources
- and whether producers are charging a price to consumers that fairly reflects the cost of the factors used to produce a good or service.
9
Q
What are examples of static efficiency?
A
- Productive efficiency
- Allocative Efficiency
10
Q
A
