Efficiency Flashcards
What does efficiency judge
How well the market allocates resources and the relationship between inputs and outputs
What is the point for Allocative Efficiency
P/AR = MC
What is Allocative Efficiency
When resources are used to produce goods that consumers want and value the most, maximises social welfare
What is the point for productive efficiency
MC = AC
What is productive efficiency
Producing at the lowest AC so the fewest resources are used to create maximum output, only possible with technical efficiency
What is technical efficiency
Producing a given output with minimum inputs
Dynamic Efficiency
Retained profits cause investment and innovation brings in new products and production methods which improves both efficiencies in the long run
X - Inefficiency
Higher production costs than is necessary for their specific level of output, they aren’t producing on the AC
Static Efficiency
When all resources and production is as efficient as it can be at that set point in time
what does X - Inefficiency do to the AC curve
shift it upwards
what does dynamic efficiency do to the AC curve
shift it down in the long run