Efficiency Flashcards
What are the types of economic efficiency?
Productive , allocative , dynamic and static and x-efficient
What is productive efficiency?/when does it occur?
Occur when a firm produces goods and services at the lowest possible cost (MC=AC)
What is allocative efficiency?/when does it occur?
Occurs when resources are allocated to their most valuable use. Customers paying full amount for cost for last unit
What is dynamic efficiency?/when does it occur?
Innovation of technology/ R&D
What is static efficiency?/when does it occur?
Maximising efficiency at a given point. Focuses on maximising output + minimising costs/ using current resources
At what point is productive efficiency produced?
MC=AC
At what point is allocatively efficiency out-put produced?
P=MC
What produces static efficiency?
Productive + allocative efficiency
What causes dynamic efficiency?
Innovation technology=> improvements to raise productivity/quality of goods
What causes x-efficiency?
Actual costs match potential costs. Costs rise due to lack of competitive pressure
What is x-inefficiency??
X-inefficiency occurs when a firm produces at a higher cost than necessary due to a lack of competitive pressure.
What are the main two causes of x-inefficiency
Inefficient use of factors of production, Overpaying for factors of production
