Productivity

Question 1

Productive efficiency

Answer 1

Occurs when the economy is on production possibility frontier (PPF), which means they are producing at full capacity.

Occur at the lowest point on the firm’s SRAC curve, it means firms are producing this quantity for the minimum cost.

Question 2

Allocative efficiency

Answer 2

Occurs when goods and services are distributed according to consumer preferences, this occurs at an output when P=MC because, at the value what the marginal benefit consumers get is the same as the marginal cost.

Question 3

X-efficiency

Answer 3

Occurs when firm’s actual costs are as low as potential. A firm exhibits x-efficiency if it lacks incentives to cut costs and thus its actual costs are higher than they could be.

Question 4

Efficiencies of scale

Answer 4

Occurs when a firm produces on the lowest point of its long run average cost curve, and therefore receives the optimum benefits of economies of scale

Question 5

Dynamic efficiency

Answer 5

Refers to efficiency over time e.g. if firms introduce new technology, it enables them to reduce costs over time and their average cost curve will shift downwards.

Dynamic efficiency is also influenced by investment in human capital and investment in capital and technology.

Question 6

Static efficiency

Answer 6

This is concerned with efficiency at a particular point in time, and making the most of existing capital and technology.

Question 7

Social efficiency

Answer 7

Includes all external costs and benefits, this occurs when social marginal cost = social marginal benefit.