Efficiency

Question 1

Productive efficiency

Answer 1

Where firms maximize there spare capacity so can’t produce anymore of the good without an opportunity cost

Question 2

Allocative efficiency

Answer 2

Where the available economic resources are used to make the mix of goods & services that most suits peoples tastes and preferences

Question 3

Static efficiency

Answer 3

Productive & allocative efficiency

Question 4

Dynamic efficiency

Answer 4

Occurs in the long run leading to the development of new products and more efficient processes that improve productive efficiency (requires supernormal profit)

Question 5

Creative destruction

Answer 5

Capitalism evolving and renewing itself over time through new tech replacing old ones

Question 6

Where are the points of static efficiency shown on a graph ?

Answer 6

Productive - min point of LRAS
Allocative - where P=MC

Question 7

X-inefficiency

Answer 7

Happens where a lack of effective competition means firms are less incentivised to control costs (bonuses)