Efficiency of markets Flashcards
1
Q
What is productive efficiency?
A
When a firm is producing at the lowest cost possible
2
Q
What is allocative efficiency?
A
Where no gians could be made by reallocating resources
3
Q
What is pareto optimal?
A
When its impossible to make one person better off without making another person worse off (allocative efficiency)
4
Q
What is a pareto improvement?
A
When allocation is not pareto optimal
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