EFFICIENCY

Question 1

Allocative efficiency…

Answer 1

Achieved when resources are directed to the goods/services that provides the maximum benefit to society and with the highest end-use.

• Allocated through a competitive market
• No resources wasted
• Goods/Services will be made in the right quantities and go to those who need them
• Prices reflect levels of scarcity and encourage producers producers to allocate more resources to the areas that satisfy demand.
• Hard to achieve total allocative efficiency

Question 2

Types of efficiency…

Answer 2

> Allocative
Productive
Dynamic
Inter-temporal

Question 3

Technical (productive) efficiency…

Answer 3

Occurs when producers produce as much as possible of goods/services from the same resources.

Question 4

Dynamic efficiency…

Answer 4

When firms are adaptive and innovative in response to changing economic circumstances. With dynamic efficiency, firms will be receptive to changes in their business environments.

Question 5

Inter-temporal efficiency…

Answer 5

When producers strike the right balance between allocating resources for current needs and those of future generations. It also ensures that there’s an adequate amount of national savings for financing and future investment.