4.1.5.10 Market structure, efficiency and resource allocation (Paper 1)

Question 1

Static efficiency

Answer 1

Efficiency at a point in time, whereas dynamic efficiency is efficiency over time

Consists of productive and allocative efficiency

Question 2

Perfect competition and static efficiency

Answer 2

Generally, PC performs well in terms of static efficiency - less well in terms of dynamic efficiency

Question 3

Define dynamic efficiency

Answer 3

• Improvements in productive efficiency over time

Question 4

How many dynamic efficiency arise?

Answer 4

• From technological development - leads to a reduction in a firm’s costs at every level of output
• Larger firms in either oligopoly or monopoly may have easier access to the necessary financial resources, i.e. from SNP - may also have strong incentives to do so if there are competitive pressures in their industry

Question 5

How can dynamic efficiency be shown on a diagram?

Answer 5

• A reduction in long-run average costs from LRAC1 to LRAC2 - leading to a fall in cost at every level of output