LS7- Efficiency

Question 1

Efficiency

Answer 1

• Concerned with the relationship between scarce inputs and outputs

Question 2

Productive efficiency

Answer 2

• When a firm is operating at the lowest point on its AC curve, exploiting EoS

Question 3

Allocative efficiency

Answer 3

• Uses the forces of supply and demand to allocate resources in a way to produce a balance of goods and services services that match consumer preferences
• When AR = MC

Question 4

X-inefficiency

Answer 4

• When operating above the AC curve, i.e. AC is higher than lowest possible due to inefficiencies

Question 5

Static vs Dynamic efficiency

Answer 5

• Static: Allocative, Productive and X-inefficiencies (occurs at one specific point)
• Dynamic: occurs over time