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Theme 3
Market Structures
3.4.1 - Efficiency
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Created by
Saberie Mohammad
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Cards (11)
What does efficiency refer to in economics?
Optimal use of
resources
to achieve the best possible
outcome
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What is allocative efficiency?
Resources distributed to maximize
consumer satisfaction
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When does allocative efficiency occur?
When price equals
marginal cost
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What is productive efficiency?
Goods produced at the
lowest possible cost
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When does productive efficiency occur?
At the lowest point of the
average cost curve
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What is dynamic efficiency?
Efficiency over time through adopting new
technologies
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What is X-inefficiency?
When a firm operates at higher costs than
necessary
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What often causes X-inefficiency?
Lack of
competition
and
incentive
to minimize costs
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What is market failure?
Inefficient
resource allocation leading to
overproduction
or
underproduction
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What are the types of economic efficiency?
Allocative efficiency
Productive efficiency
Dynamic efficiency
X-inefficiency
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Why is understanding types of efficiency crucial?
Analyzing
market performance
Addressing market
failures
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