Efficiency of markets Flashcards

1
Q

What is productive efficiency?

A

When a firm is producing at the lowest cost possible

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2
Q

What is allocative efficiency?

A

Where no gians could be made by reallocating resources

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3
Q

What is pareto optimal?

A

When its impossible to make one person better off without making another person worse off (allocative efficiency)

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4
Q

What is a pareto improvement?

A

When allocation is not pareto optimal

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5
Q

What are the main rules of indifference curves and bundles?

A
  • Averages preferred to extremes
  • More preferred to less
  • Indifference curves can’t cross
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