Economic Efficiency Flashcards
If firms aren’t…
Efficient they will not have the ability to compete within a market
Economic efficiency definition
Is concerned with how well resources are used to resolve the three fundamental economic questions what, how and for whom production should take place
Production efficiency
Is when the costs of production is at its lowest this occurs in the long run- monopolistic comp
Firms with…
high unit labour costs may not be able to justify remaining within the market as the market price is driven down by the forces of competition
Allocative efficiency definition
When resources have been allocated in such a way that no consumers would be better off without making others worst off
This occurs in both the long run and short run
Price= marginal cost
X efficiency definition…
Occurs when firms have incentives to cut costs and so use the optimal combination of the factors of production
X efficiency means that..
Actual costs are as low as possible
Actual costs are higher than potential