4.1 Economic Efficiency

Question 1

What is economic efficiency?

Answer 1

Making optimal use of scarce resources

Question 2

Types of efficiency?

Answer 2

PADS
1) Productive
2) Allocative
3) Dynamic
4) Social

Question 3

What is Productive Efficiency?

Answer 3

Where a firm operates at the lowest point on its AC curve
AC=MC

Question 4

What is Allocative Efficiency?

Answer 4

Where customer value of a product equals its additional unit cost
AR=MC

Question 5

What is Dynamic Efficiency?

Answer 5

How well a firm can adapt over time to improve efficiency

Question 6

What is Social Efficiency?

Answer 6

Where MSB=MSC
(AR=MC)
If not allocatively efficient, there is waste and negative externalities

Question 7

What is X-inefficiency?

Answer 7

Where costs are higher than MES

Question 8

Causes of x-inefficiency?

Answer 8

1) Satisficing profit over optimising
2) Lack of competition
3) Patents giving immunity

Question 9

Efficiency in Perfect competition?

Answer 9

• High allocative efficiency
• High productive efficiency

Question 10

Efficiency in Monopolisitc competition?

Answer 10

• Not allocatively efficient (AR>MC)
• Lower productive efficiency

Question 11

Efficiency in an Oligopoly?

Answer 11

• Not allocatively efficient
  (AR>MC)
• Economies of scale BUT possible x-inefficiency

Question 12

Efficiency in a Monopoly?

Answer 12

• Not allocatively efficient
• Economies of scale BUT possible x-inefficieny