T3: LS7 - Efficiency

Question 1

What are the four types of efficiency

Answer 1

Dynamic efficiency
Productive efficiency
Allocative efficiency
X-efficiency

Question 2

Define productive efficiency

Answer 2

Productive efficiency: the rate at which factors of production produce a single output of G&S

Where AC is at its lowest

Question 3

Define allocative efficiency

Answer 3

AE: the point at which resource distribution maximises social welfare in production of G&S.

• P= MC (p1=c1)
• MB = MC

Question 4

Define dynamic efficiency

Answer 4

An economy’ ability to improve its resource allocation and productivity over time through innovation and investment

Question 5

Define X-efficiency

Answer 5

X-efficiency: a measure of a firms internal efficiency in minimising costs and reducing waste in its production process

• occurs when firms produce on its AC line (in-efficiency occurs when AC line shifts up)

Question 6

Pareto efficiency definition

Answer 6

Pareto efficiency: an economic state where resources are allocation so it’s impossible for one person to gain without another suffering.

• trade-off of one person benefitting and one losing.