Unit 3- Efficiency

• Allocative efficiency

  • Benefits society
  • Level of output is Average Revenue = Marginal Cost
  • Social surplus and net social benefit are maximised
• Productive efficiency

  • Business benefits
  • A firm is minimising its costs
  • Allocation of resources reduces wastage
  • AC = MC
• Dynamic efficiency

  • Re-investment of LR Supernormal profits
• X-efficiency

  • Minimisation of resource wastage
  • Production on AC curve
• Characteristics of market structures

  • Nr of buyers
  • Nr and size of firms
  • Type of product in the market
  • Types of barriers to enter and exit
  • Degree of competition
• Separation of market structures

  Perfect and Imperfect competition
• Perfect vs Imperfect competition

  • Perfect: When firms cannot influence the price because they don't have market power
  • Imperfect: When firms can influence the price due to market power
• Markets in imperfect competition

  • Monopolistic competition
  • Monopoly
  • Oligopoly