Efficiency Analysis Flashcards
Allocative Efficiency
- D=S which maximises societal benefit
2. Condition of P=MC
Consumer Analysis for Allocative Efficiency
Resources follow consumer demand
Low prices
Higher choices and quality
Producer Analysis for Allocative Efficiency
Retain/increase market share
Stay ahead of rivals
Increased profit
Productive Efficiency
- Fully utilising all EoS to maximise output at lowest cost
- Minimum point of AC
Consumer Analysis for Productive Efficiency
Lower prices
High consumer surplus
Full exploitation of EoS
Producer Analysis for Productive Efficiency
More production at a lower price
Which means higher profits
More sales so more market share
Dynamic Efficiency
Reinvestment of supernormal profits into innovation and R&D
Consumer Analysis for Dynamic Efficiency
New innovative products so more choice
Lower price in the LR
Higher consumer surplus
Producer Analysis for Dynamic Efficiency
LR profit maximisation
Lower costs over time
higher market share as more sales due to lower prices
Stay ahead of rivals
X Efficiency
Producing with no extra waste
ON AC curve
Consumer Analysis for X Efficiency
Lower prices
Higher Consumer surplus
Producer Analysis for X Efficiency
Lower costs
Higher profit
Lower prices so higher market share
