Economic Efficiency

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Define economic efficiency
making the best use of scarce resorces to produce as much as possible and satisfy as many needs and wants as possible
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Static efficiency
This is being as efficient as possible at a point in time with current resources avaliable
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There are two types of static efficiency- name them
Productively efficient and Allocatively efficient
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Productively efficient
When producing at lowest average cost, this can be anywhere in the optimum range of production, anywhere between A and B on PPF
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Allocatively efficient
The price is equal to MC- meaning the price someone pays for a good is a reflection on how much it costs to make. This is the best use of societies scarce resources
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When you are allocatively efficient it is normally
Pareto optimality- meaning it is imporssible to make anyone better off without making someone at least as worse off
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Dynamically efficient
Measured over time and involves use and development of new technology, research and developmen, new product development etc- it chnages the scope of what is actually possible
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To be dynamically efficient a firm USUALLY needs
SNP's to be able to invest
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X-efficiency
Occurs when firms' actual costs are as low as potential. A firm exhibits x-efficiency if it lacks incentives to cut costs and so its actual costs are higher than they could be
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Consumer Surplus
Represents the total saving enjoyed by consumers who were prepared to pay a higher price than the equalibrium but don't have to as everyone pays P.
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What would businesses attempt to do to the consumer surplus
attempt to price discriminate and expolit different willingness to pay that people have- if they do this they reduce consumer surplus and replace it with producer surplus
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Producer Surplus
Some producers are willing to supply the good at a lower price than P even though it is less profitable but they don't have to as everyone pays P. This represents the additional revenue gained by producers as they were willing to sell for less.
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Why discriminate inelastic customers?
Becasue they are unable to be flexable so firms exploit this by reducing consumer surplus and replacing it with producer surplus
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elastic customers
pay a lower price- enjoying a large consumer surplus
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Other cards in this set

Card 2

Front

Static efficiency

Back

This is being as efficient as possible at a point in time with current resources avaliable

Card 3

Front

There are two types of static efficiency- name them

Back

Preview of the front of card 3

Card 4

Front

Productively efficient

Back

Preview of the front of card 4

Card 5

Front

Allocatively efficient

Back

Preview of the front of card 5
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