Productive vs allocative efficiency | Economics Help
Productive Efficiency Allocative Efficiency Evidently allocative efficiency has to do with the relationship between price and marginal cost. Using diagrams a simplified explanation of productive and allocative efficiency. Examples of efficiency and inefficiency. Productive efficiency. microeconomic theory focuses on allocative efficiency to the exclusion of other types .. was changed only recently whereas the difference in labor productivity existed for .. The relation between the "cost" of advice or consulting services and.
Productive vs allocative efficiency
Economists usually distinguish between three types of efficiency: The first two of these are static concepts being concerned with how much can be produced from a given stock of resources at a certain point in time. The third is a dynamic concept and concerned with pushing out the production possibility frontier and giving the community access to more and better goods and services over time.
Allocative efficiency — is about ensuring resources are allocated between alternative uses in a way that maximises community wellbeing. Productive efficiency — describes the situation in which output is being produced at is lowest possible average cost.Y2/IB 12) Efficiency (Allocative, Productive, Dynamic and X)
This occurs when an organisation, industry or the economy as a whole is operating on its production possibility frontier i. Dynamic efficiency — involves improving allocative and productive efficiency over time. This can mean developing new or better products and finding better ways of producing goods and services.
Learning, investment and innovation are key elements of dynamic efficiency and central to the ability of an organisation, industry or economy to adjust to changing circumstances. The Productivity Commission has produced a very useful summary of how it defines these and related concepts, which provides a more detailed discussion than is possible here.
This is not to suggest Australia has exhausted opportunities for structural reform but rather a future reform agenda is likely to look somewhat different to what it did in the s and s. Allocative efficiency is concerned with the optimal distribution of goods and services. An economic could be productively efficient in producing large numbers of boots, but if they were all for the left foot, it would be allocatively inefficient as no one would benefit from these low production costs.
Definition of productive efficiency This is defined as producing goods and services for the lowest cost. Productive efficiency is said to occur on the production possibility frontier.
Economics notes: Definitions of efficiency
On the PPF curve, it is impossible to produce more of one good without producing less of another. In the diagram below. Point D in the graph is productively inefficient because you can produce more goods or services without an opportunity cost.
Usually, productive efficiency refers to the short run i. Related to productive efficiency is the concept of technical efficiency. Technical efficiency specifically refers to the optimal combination of inputs, i.
Allocative Efficiency definition Allocative efficiency is quite different and is more concerned with the distribution and allocation of resources in society.