efficiency

Question 1

what is allocative efficiency?

Answer 1

• looks at consumer mainly, are resources being allocated at a point where consumer satisfaction is maximised + consumers are demanding a product
• welfare of consumers and producer is maximised
  when P=MC

Question 2

what does it mean if demand equals supply in terms of efficiency?

Answer 2

if demand equals supply there is allocative efficiency
Price/AR = Marginal cost
high choice + quality

Question 3

what is productive efficiency?

Answer 3

about firms minimising their costs and maximising their production
when firms produce at the lowest possible point on the AC curve

Question 4

draw a diagram to show productive efficiency and what may it lead to?

Answer 4

• occurs at minimum point on average cost curve
• reduce losses
• may lead to lower prices for consumers if passed onto consumers

Question 5

what is dynamic efficiency?

Answer 5

• occurs over time. needs to be supernormal profit being made by a firm
  supernormal profits may be reinvested back into the firm
  lower unit costs overtime

Question 6

what is X-inefficiency?

Answer 6

if firms are X-inefficient it means they’re being wasteful

Question 7

show X-inefficiency on a diagram- where does it occur?

Answer 7

occurs any point on AC curve

Question 8

how can you evaluate allocative efficiency

Answer 8

will only be achieved if there are no market externalities

Question 9

how can you evaluate productive efficiency

Answer 9

only occurs if the industry as a whole is minimising costs