Economics Efficiencies

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Conditions for productive efficiency

- It exists when producers minimise the wastage of resources in their production processes. - It can only exist when there is technical efficiency. This is when a given quantity of output is produced with the minimum number of inputs (or greatest output with given input). - It occurs at the *minimum point of AC (where MC = AC)*, as that is the point when the firm is producing at the lowest average cost

Technical efficiency

Achieved when a given quantity of output is produced with the minimum number of inputs.

Productive efficiency

Achieved when production is achieved at lowest average cost.

Allocative efficiency in the economy as a whole

For an economy as a whole, productive efficiency occurs when it is operating at a particular point on the production possibility frontier, representing how consumers want goods to be allocated.

Productive efficiency in the economy as a whole

For an economy as a whole, productive efficiency occurs when it is operating on its production possibility frontier.

Concern of allocative efficiency

It is concerned with whether we are producing the goods and services that match our changing needs and preferences and which we place the greatest value on. It is reached when no one can be made better off without making something else worse off. This is also known as Pareto efficiency.

Conditions of allocative efficiency

It occurs when the value that consumers place on a good or service (reflected in the price they are willing and able to pay) equals the cost of the resources used up in production. It must occur where *Marginal Cost = Price (MC = P or AR)*, as this is the point beyond which the cost to society is greater than the value consumers place on the extra unit of production.

Static efficiency

Occurs when resources are allocated efficiently at a point in time.

Dynamic efficiency

Occurs when resources are allocated efficiently over time. Occurs when the PPF moves outwards in accordance to consumers' future preferences.

Allocative (economic) efficiency

Occurs when scarce resources are used to produce a bundle of goods which satisfies consumer preferences and maximises their welfare.

Welfare economics

The study of how an economy can best allocate resources to maximise the utility or economics welfare of its citizens.


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