Business efficiency , allocative , productive , dynamic and X efficiency Flashcards
(16 cards)
What is allocative efficiency ?
Where demand = supply , maximisation of society surplus occurs
What is the condition for allocative efficiency ?
Price = Marginal cost
What is the consumer analysis for allocative efficiency ?
Resource follows consumer demand
Low prices means a max of consumer surplus
High choice
High quality
What is the producer analysis for allocative efficiency ?
Retain or increase market share
Stays ahead of rivals
Increased profit
What is productive efficiency ?
Maximising output at the lowest possible average cost
What is the condition for productive efficiency ?
Lowest point on Average cost
MC=AC
What is the consumer analysis for productive efficiency ?
Lower prices
Higher consumer surplus
Full exploitation of economies of scale , max output at lowest point on AC
What is the producer analysis for productive efficiency ?
More production possible at lowest AC
Higher profits made as costs are low
Lower prices and greater market share
What is dynamic efficiency ?
Re investment of supernormal profit into innovation , R+D , new tech to lower long run average cost
What is the condition for dynamic efficiency ?
Supernormal profit in the long run
What is the consumer analysis for dynamic efficiency ?
New innovative products
Lower prices over time
Higher consumer surplus as new tech lowers AC
What is the producer analysis for dynamic efficiency ?
Long run profit maximisation
Lower costs over time
Refrain and increased market share
Keeps them ahead of rivals
What is X inefficiency ?
Production without waste
The waste produced by firms
What is the consumer analysis for X inefficiency ?
Lower prices
Higher consumer surplus
What is the producer analysis for X inefficiency
Lower costs
Higher profit
Lower price leads to higher market share
