Here are some key concepts relating to economic efficiency in markets with supporting Quizlet revision activities.
Allocative efficiency: When scarce resources are allocated according to consumer preferences at a price equal to marginal cost
Productive efficiency: When a firm is operating at the lowest point of their average cost curve in the short or the long run.
Dynamic efficiency: A market's ability to promote cost-reducing and/or product-enhancing technological change
X-inefficiency: When a firm is not operating at minimum average cost - perhaps due to organisational slack, wastage in the production process or poor management.
Dead-weight loss of welfare:The loss of social welfare arising from prices being higher and output lower than is allocatively efficient
Social efficiency: Where external costs and benefits are accounted for i.e. when MSB = MSC
Economies of scale: Factors that cause a producer's average cost per unit to fall as output rises in the long run
X-efficiency: When a business produces at an output that minimises waste of resources
Productivity: Measured by output per worker or output per hour worked
Static efficiency: Efficiency at a particular point in time either allocative or productive
Human capital: A measure of individuals’ skills, knowledge, abilities, social attributes, personalities and health attributes
Pareto optimality: A distribution of things such that no one can be made better off without someone becoming worse off
Research and Development: Spending by businesses towards the innovation, introduction, and improvement of products and processes
Technical efficiency: How well and quickly a machine produces high quality goods. Costs are not considered.
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