Static and dynamic efficiency

Question 1

Define X inefficiency

Answer 1

occurs when a firm is not operating at minimum cost, perhaps because of organisational slack from managers

Question 2

Define allocative efficiency

Answer 2

When Supply=demand, society is producing appropriate bundles of goods and services relative to customer preferences

Question 3

Define productive efficiency

Answer 3

When a firm operates at minimum average cost, choosing an appropriate combination of inputs and producing the maximum output possible from these inputs

Question 4

Define static efficiency

Answer 4

Efficiency at a specific point in time

Question 5

Define dynamic efficiency

Answer 5

A view of efficiency that takes into account the effect of innovation and technical progress on productive and allocative efficiency in the long run eg Porsche investing £700mn into electric cars to challenge teslas dominance

Question 6

How do PPF and Supply/demand graphs show allocative efficiency

Answer 6

Anywhere on the PPF curve is allocative efficiency. Maximum output is being achieved from a fixed number of inputs (assuming customer preference is being matched as a result)

Question 7

What is economic efficiency

Answer 7

When there is allocative and dynamic efficiency