Revision quizzes

Economic Efficiency (Quizlet Revision Activity)

  • Levels: A Level, IB
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

Here are ten key concepts relating to economic efficiency in markets - this is a really important area of the A level course. Students who bring efficiency ideas into their analysis and evaluation will score higher marks.

Economic efficiency - key concept summary

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


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