Efficiency Flashcards
What is allocative efficiency?
consumer satisfaction is maximized in the production of goods and services
What does allocative efficiency maximize?
consumer satisfaction
What is productive efficiency?
maximum output that can be produced from the available resource at the lowest possible cost
When is productive efficiency achieved?
average costs are minimised
Why might productive efficiency differ in the short and long run?
Short run - isn’t productive efficient, fixed costs cannot changed due to contracts
Long run - they can negotiate contracts so can become efficient
What is dynamic efficiency?
occurs where firms improve technology and production methods over a period of time
What is X-inefficiency?
when a firm is not operating at its lowest costs as there’s no incentives for it to do this
