3.5.11 - Market Structure, Static Efficiency, Dynamic Efficiency and Resource Allocation

Question 1

What is static efficiency?

Answer 1

Efficiency at a particular point in time.

Question 2

What types of efficiency can be considered static?

Answer 2

Allocative and productive.

Question 3

What types of firms benefit from dynamic efficiency?

Answer 3

Monopolies and imperfectly competitive firms.

Question 4

How can monopolies improve their dynamic efficiency?

Answer 4

Due to making abnormal profit in both short-run and long-run, this profit can be reinvested to achieve improvements in dynamic efficiency via R&D and innovation.

Question 5

What is dynamic efficiency?

Answer 5

The improvements in productive efficiency over time.

Question 6

What types of efficiency does monopolistic competition exhibit in the long-run?

Answer 6

Allocative efficiency.

Question 7

What types of efficiency do perfectly competitive firms exhibit in long-run equilibrium?

Answer 7

Allocative efficiency
Productive efficiency
X efficiency

Question 8

What types of efficiency do monopolies and oligopolies typically exhibit?

Answer 8

Dynamic efficiency

Question 9

What is allocative efficiency?

Answer 9

Where there is an optimal distribution of goods and services according to consumer wants.

Where resources follow consumer demand.
Where society surplus is maximised (producer + consumer).
Where net social benefit is maximised.

Where supply = demand.

Question 10

What is productive efficiency?

Answer 10

When economies of scale are fully exploited.

When a firm is producing at the lowest point on their AC curve.

Question 11

What is x-efficiency?

Answer 11

What waste of a firm is minimised.

When production takes place on the AC curve.

Question 12

What is dynamic efficiency?

Answer 12

Reinvestment of long-run supernormal profit.

Question 13

How do consumers benefit from a firm that is allocatively efficient?

Answer 13

• Resources follow consumer demand.
• Prices are low.
• Consumer surplus is maximised at this point.
• There is are a large number of choices.
• There is high quality of goods.

Question 14

How do producers benefit from being allocatively efficient?

Answer 14

• Market share is retained or increased.
• The firm stays ahead of rivals.
• Profit is increased relative to normal profit.

Question 15

How do consumers benefit from productive efficiency?

Answer 15

• There are lower prices.
• There is a high consumer surplus.
• Economics of Scale are fully exploited.

Question 16

How do producers benefit from being productively efficient?

Answer 16

• There is increased production at a lower AC point.
• There are higher profits being made.
• The lower prices will lead to a greater market share.

Question 17

How do consumers benefit from dynamic efficiency?

Answer 17

• New and innovative products are made.
• Prices are lowered over time via innovation.
• There is a high consumer surplus.

Question 18

How do producers benefit from being dynamically efficient?

Answer 18

• Long-run profits are maximised.
• Costs are lowered over time.
• Market share is increased over time as they have more innovative products.
• Firms can remain ahead of rivals over time as they have more innovative products.

Question 19

How do consumers benefit from x-efficiency?

Answer 19

• Prices are low.
• Consumer surplus is higher.

Question 20

How do producers benefit from being x-efficient?

Answer 20

• Costs are lowered.
• Profits are higher.
• Prices are lower with an increased market share.