Efficiency

Question 1

Static Efficiency

Answer 1

Static efficiency is concerned with the most efficient combination of resources at a given point in time.

Productive and allocative efficiency are examples of static efficiency.

Question 2

Productive Efficiency (Part of Static Efficiency)

Answer 2

On the PPC curve due to no wastage of resources (full employment)

Productive efficiency is at the lowest point on the AC curve
https://www.economicshelp.org/wp-content/uploads/2017/12/productive-efficiency.jpg

Question 3

Allocative Efficiency (Part of Static Efficiency)

Answer 3

Allocative Efficiency is concerned with the optimal distribution of resources demanded by consumers. Eg are too many shoes being produced in an economy but not jumpers?

Question 4

Welfare Economies

Answer 4

The study of how an economy can best allocate their resources to maximise the utility or economic welfare of its citizens

Question 5

Dynamic Efficiency

Answer 5

Dynamic efficiency is concerned with how resources are allocated over a period of time.

A firm which is dynamically efficient will be reducing its cost curves by implementing new production processes.

Dynamic efficiency will enable a reduction in both SRAC and LRAC

Question 6

X-Inefficiency

Answer 6

X-Inefficiency occurs when a business uses more inputs than necessary for a given level of output.

Libenstein (1996) pointed to potential cost inefficiencies arising from lack of effective competition within a market.

Question 7

Causes of X-Inefficiency

Answer 7

Monopoly Power - A monopoly has little/no competition, therefore it might be easy for the monopolist to make supernormal profits. Due to absence of competition, may not try hard to control costs.

State Control - A nationalised firm owned by the government may face little or no incentive to try to make profit. Therefore, it has less incentive to try to cut costs.