4) productive and allocative efficiency

Question 1

Define productive efficiency

Answer 1

attained when a firm operates at minimum average total cost, choosing an appropriate combination of inputs (cost efficiency) and producing the maximum output possible from those inputs (technical efficiency)

Question 2

Define allocative efficiency

Answer 2

achieved when consumer satisfaction is maximised

Question 3

Define economic efficiency

Answer 3

a situation in which both productive efficiency and allocative efficiency have been reached

Question 4

Why is economic efficiency important

Answer 4

Economic efficiency means that consumer satisfaction is maximised at a point where the cost of producing those goods is lowest, and supply and demand is being met too

Question 5

What is the benefit of productive efficiency

Answer 5

the economy is producing the most amount of goods for the lowest cost given the set inputs, and therefore are maximising the outputs from the well allocated factors of production

Question 6

What is the benefit of allocative efficiency

Answer 6

the demands of all consumers are being met without anyone being left out, and no supply is wasted