Productive And Allocative Efficiency

Question 1

Economic efficiency

Answer 1

Exists when the economy is using its resources in an effective way by producing at the lowest possible cost

Question 2

Economic wellbeing

Answer 2

Refers to the state of contentment achieved by the overall economy from the production and consumption of g/s

Question 3

Welfare

Answer 3

Refers to the wellbeing from the production and consumption of g/s. The maximization of societies welfare occurs when the quantity of g/s produced from scarce resources results in the achievement of both production and allocative efficiency

Question 4

Pareto efficiency/ Pareto optimality

Answer 4

This occurs when it is not possible to make one person better off without making another worse off. In other words, it is not possible to change the existing allocation of resources to improve the welfare of society. **Pareto efficiency is achieved when both productive and allocation efficiency are simultaneously achieved **

Question 5

Productive efficiency imply

Answer 5

Implies that resources are efficiently used in the production of g/s, it is achieved when the Average cost of producing g/s is minimized

Question 6

Where does productive efficiency occur

Answer 6

This occurs at the point where MC curve intersects the AC curve this occurs at the level of output shown by Q0 in the graph

Question 7

If productivity efficiency is not achieved

Answer 7

It implies that social welfare is Not being maximized. In other words, production inefficiency leads to welfare loss (insufficient amount of resources are being used in the production of the g/s)

Question 8

Any point on the ppc/ppf

Answer 8

Is a point of productive efficiency

Question 9

When is allocative efficiency achieved

Answer 9

This is achieved when resources are directed to production in such a way that optimal output of g/s is generated

Question 10

What does an optimal output level mean

Answer 10

That various g/s are not under produced or over produced with respect to the PPC, where only one point of the frontier/curve is the socially optimum level of output

Question 11

What does it imply when production efficiency and allocative efficiency is achieved

Answer 11

It implies that resources are being used efficiently to produce g/s that generate the highest level of contentment for society (welfare of society is maximized)