3.4.1 Flashcards
When does dynamic efficiency occur?
When businesses supplying a market successfully meets our changing needs and wants over time
What is product innovation?
Small-scale and subtle changes to the characteristics and performance of a good or service
What is process innovation?
Changes to the way in which production takes place or is organised
Changes in business models and pricing strategies
What does creative destruction refer to?
The dynamic effects of innovation with new products or business models, some jobs are lost but new one are created.
What is deadweight loss?
It is a cost to society created by market inefficiency which occurs when supply and demand are out of equilibrium
What is allocative efficiency?
Producing what is demanded by consumers at a price that reflects the marginal cost of supply
What is productive efficiency?
Producing an output at the lowest feasible average cost. This is at an output where AC = MC in the short-run, or at the minimum efficient scale in the long run.
What is X-inefficiency?
A lack of real competition may give a monopolist a weak incentive to invest in new ideas or consider consumer welfare
What is social efficiency?
The optimal distribution of resources in a society, taking into account all external costs and benefits as well as the internal costs and benefits
What is pareto optimally?
Where it is not possible for households, or firms to bargain or trade in such a way that everyone is at least as well off as they were before and at least one person is better off
Social efficiency occurs at an output where what equal what?
Marginal social benefit (MSB) = Marginal social cost (MSC)
