4.1 Economic Efficiency Flashcards
What is economic efficiency?
Making optimal use of scarce resources
Types of efficiency?
PADS
1) Productive
2) Allocative
3) Dynamic
4) Social
What is Productive Efficiency?
Where a firm operates at the lowest point on its AC curve
AC=MC
What is Allocative Efficiency?
Where customer value of a product equals its additional unit cost
AR=MC
What is Dynamic Efficiency?
How well a firm can adapt over time to improve efficiency
What is Social Efficiency?
Where MSB=MSC
(AR=MC)
If not allocatively efficient, there is waste and negative externalities
What is X-inefficiency?
Where costs are higher than MES
Causes of x-inefficiency?
1) Satisficing profit over optimising
2) Lack of competition
3) Patents giving immunity
Efficiency in Perfect competition?
- High allocative efficiency
- High productive efficiency
Efficiency in Monopolisitc competition?
- Not allocatively efficient (AR>MC)
- Lower productive efficiency
Efficiency in an Oligopoly?
- Not allocatively efficient
(AR>MC) - Economies of scale BUT possible x-inefficiency
Efficiency in a Monopoly?
- Not allocatively efficient
- Economies of scale BUT possible x-inefficieny
