4.1.5.10 - Market Structure, Static Efficiency, Dynamic Efficiency and Resource Allocation Flashcards
What is static efficiency?
Efficiency at a particular point in time.
What types of efficiency can be considered static?
Allocative and productive.
What types of firms benefit from dynamic efficiency?
Monopolies and imperfectly competitive firms.
How can monopolies improve their dynamic efficiency?
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.
What is dynamic efficiency?
The improvements in productive efficiency over time.
What types of efficiency does monopolistic competition exhibit in the long-run?
X-efficiency, Dynamic efficiency
What types of efficiency do perfectly competitive firms exhibit in long-run equilibrium?
Allocative efficiency, Productive efficiency, X-efficiency
What types of efficiency do monopolies and oligopolies typically exhibit?
Dynamic efficiency
What is allocative efficiency?
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.
What is productive efficiency?
When economies of scale are fully exploited. When a firm is producing at the lowest point on their AC curve.
What is x-efficiency?
The waste of a firm is minimised. When production takes place on the AC curve.
What is dynamic efficiency?
Reinvestment of long-run supernormal profit.
How do consumers benefit from a firm that is allocatively efficient?
Resources follow consumer demand. Prices are low. Consumer surplus is maximised at this point. There is a large number of choices. There is high quality of goods.
How do producers benefit from being allocatively efficient?
Market share is retained or increased. The firm stays ahead of rivals. Profit is increased relative to normal profit.
How do consumers benefit from productive efficiency?
There are lower prices. There is a high consumer surplus. Economies of Scale are fully exploited.
How do producers benefit from being productively efficient?
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.
How do consumers benefit from dynamic efficiency?
New and innovative products are made. Prices are lowered over time via innovation. There is a high consumer surplus.
How do producers benefit from being dynamically efficient?
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.
How do consumers benefit from x-efficiency?
Prices are low. Consumer surplus is higher.
How do producers benefit from being x-efficient?
Costs are lowered. Profits are higher. Prices are lower with an increased market share.
