3.4 - Efficiency Flashcards
What are the 4 types of economic efficiency?
Productive
Allocative
Dynamic
X-Inefficiency
What is economic efficiency?
Optimal societal use of scarce resources to satisfy wants + needs
When does allocative efficiency occur?
Consumer price = Costs of Production
AR = MC
When does productive efficiency occur?
When a firm operates on the lowest point of its AC curve
What happens when a firm is productively efficient?
Minimises resource wastage
Firm on production possibility frontier
Only able to produce more x by sacrificing y
When does dynamic efficiency occur?
Resources allocated efficiently
Optimum innovation
Falling LRAC
What does a dynamically efficient firm have the ability to do?
Generate supernormal profit
When does X inefficiency occur?
Lack of real competition
No investment + consumer welfare incentives
Drifting LRAC
What is a deadweight welfare loss?
Loss of prod/cons surplus due to inefficient production
What are the 2 forms of innovation?
Product
Process
What is product innovation?
Small scale/subtle changes to characteristics of good/service
What is process innovation?
Changes in way production is organised/takes place
Changing business model/strategy
What is Creative Destruction?
Schumpeter theory
New models/products, some jobs lost but new ones created
