Efficiency

    Cards (34)

    • Why do supply curves typically slope upward?
      Higher output levels mean increased marginal costs
    • What is the definition of efficiency in economics?
      Maximization of consumer/producer surplus
    • What is consumer surplus?
      Difference between total value and payment
    • How is producer surplus defined?
      Earnings above necessary production costs
    • What is dead-weight loss?
      Loss of surplus when moving from free market
    • When is economic welfare maximized?
      When total utility is maximized
    • What is economic efficiency?
      Achieved when productive and allocative efficiency exist
    • What is productive efficiency?
      Producing output at the lowest possible cost
    • What does allocative efficiency mean?
      P equals marginal cost, assuming zero externalities
    • What is static efficiency?
      Efficient allocation of resources at a point in time
    • What is dynamic efficiency?
      Efficient allocation of resources over time
    • What is marginal cost?
      Additional cost of producing one more unit
    • How is consumer surplus calculated in the car example?
      £15,000 value minus £12,000 payment
    • What does the shaded area under the demand curve represent in consumer surplus?
      • Total consumer surplus
      • Difference between total value and market price
    • What is the maximum number of cars bought at £12,000?
      Q cars
    • What does producer surplus represent in the car example?
      Earnings above the minimum selling price
    • How is producer surplus illustrated in the car example?
      Shaded area under the supply curve above price line
    • What is the difference between producer surplus and profit?
      Producer surplus is not the same as profit
    • When is economic welfare maximized?
      When sum of consumer and producer surplus is maximized
    • What happens when firms sell above equilibrium price?
      Deadweight loss occurs
    • What is productive efficiency illustrated by in the PPF?
      Points on the PPF indicate productive efficiency
    • What does allocative efficiency ensure?
      No resources are misallocated in the economy
    • How is allocative efficiency achieved at the industry level?
      When cost to society equals benefit to society
    • What does the firm's supply curve represent?
      Constructed from its marginal cost curve
    • What does the law of diminishing returns state?
      Each extra variable adds less to output eventually
    • What happens when output increases beyond a certain point?
      Each extra unit costs more than the last
    • What is the relationship between marginal cost and supply curve?
      Supply curve is derived from marginal cost curve
    • What does the demand curve represent?
      Maximum price consumers are willing to pay
    • What is the benefit of increasing output from 0 to 1 unit?
      Benefit exceeds the cost of production
    • What happens when the fifth unit is produced?
      Cost equals benefit, should not be produced
    • When is society's welfare maximized?
      When industry produces where D equals S
    • How do changes in demand and supply affect consumer and producer surplus?
      They shift the curves, altering surplus areas
    • Which type of firms are expected to be most efficient in the real world?
      Firms with much competition
    • What is the difference between static and dynamic efficiency?
      Static is at a point; dynamic is over time
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