Th2.5: Efficiency Flashcards
How is efficiency important?
it is important in bringing about economic growth as it means less resources are needed to produce each good, so more goods can be produced
What is one way the government can ensure efficiency and how does this work?
keep up competition as it will mean producers are forced to lower prices or increase quality so will have to improve efficiency to keep profits high
In order for there to be efficiency…
the market mechanism must be working properly
In some countries, particularly low and middle-income countries, the mechanism doesn’t work properly due to…
a lack of protection of property rights
What will happen if the government doesn’t intervene to protect property rights?
then people will be unwilling to save and invest which will prevent economic growth
What will happen to farmers if there is not an efficient capital market?
they will not have access to loans to expand their business
Countries may experience civil wars or natural disasters which will lead to…
negative growth as human and physical assets are destroyed
Why is there a lack of efficiency in a communist society?
the government is the only supplier and they are not motivated to cut costs to keep profits high
What happens when governments intervene too much?
they can cause inefficiency through government failure rather than market failure
