Productive efficiency and allocative relationship counseling

Allocative Efficiency and the Production Possibilities Frontier

productive efficiency and allocative relationship counseling

Efficiency is concerned with the relation between resource inputs (costs, in the form of Although productive efficiency implies technical efficiency and allocative. Allocative Efficiency occurs where MR=MC - Productive Efficiency occurs are the level of output where Average Cost in minimised. Thanks in. Productive Efficiency Allocative Efficiency Evidently allocative efficiency has to do with the relationship between price and marginal cost.

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. Allocative efficiency looks at the marginal benefit of consumption compared to the marginal cost.

Productive efficiency - Wikipedia

Monopoly Related to allocative efficiency is the concept of social efficiency. Social efficiency makes a point of taking into account all externalities so we can try and equate social marginal benefit and social marginal cost. Which is most important productive or allocative efficiency? There would be no point in being productively efficient if all resources are diverted to making guns. We could be producing on a production possibility frontier but, if it is all guns, society would not have enough food or health care.

productive efficiency and allocative relationship counseling

An anecdote from the Soviet Union under Communist days tells how factories were given targets to produce certain quantities of goods. There is a story that one factory made left-hand boots that nobody wanted, so at the end of the day they would efficiently burn them and the next day start again!

They were productively efficient but not allocatively efficient. Therefore, we can derive a simple formula for maximizing allocative efficiency. Allocative efficiency is maximized when the marginal benefit equals the marginal cost of producing one extra unit.

  • Productive vs allocative efficiency

When allocative efficiency is maximized with respect to the good, then the manufacturer is producing the good in the exact quantities that society desires. On the other hand, if the manufacturer produces more goods than what society desires, then the price they are willing to pay will be less than the economic cost of production, and will cause profits to drop.

Expanding the Production Possibilities Frontier The assumptions of the production possibility frontier simplify the analysis of the effect of allocating resources differently. Over time, however, the production possibility frontier can be expanded. Increases in the production possibility frontier will be made possible by increased resources, such as population growth, advances in technologyand also by the application of technology, such as developing irrigation systems so that more arid land can be used for farming.

EconMovies #7: Anchorman- Efficiency and Externalities

However, the largest expansion of the production possibility frontier of any economy will probably result from advances in technology, especially computer, network, robotics, and artificial intelligence technology. Not only do computers reduce the need for resources, but robotics will increasingly reduce the need for human labor. With the aid of computers, networks, and robotics, each person will be able to do more and more, thereby greatly increasing the productivity of each individual.

Furthermore, the Internet can quickly distribute information and knowledge to anyone who wants it, improving productivity. Consider the simple elimination of paper. The Internet, computers, e-readers, and other portable devices allow the creation, distribution, and consumption of information and knowledge in an electronic format. Content can be created on computers, distributed by the Internet to anywhere in the world for virtually no cost, then read on portable devices.

This reduces the need for the many trees required to manufacture paper, the need for delivery vehicles and their requirement for fuel and other maintenance, the need of publishing houses and distribution centers, such as bookstores, and their associated land and labor.

Note that economic growth will always be uneven, that the production of some goods can become more cost-effective faster than other goods.

However, when the cost of producing a good decreases, it also frees economic resources for the production of other goods or services. An economy's choice of how much to invest in capital and consumer goods will determine how fast future growth will be. A greater investment in capital goods over consumer goods will usually result in faster future growth but at the expense of current consumption. International trade also allows a nation to benefit from the comparative advantage of other countries.

Allocative Efficiency and the Production Possibilities Frontier

Thus, by using the cheaper labor in China and India, United States manufacturers and service providers can lower their production costs, which benefits American consumers. The production possibility frontier can also be expanded by eliminating anything that causes unemploymentsuch as discrimination based on race, sex, or any other quality and by eliminating unnecessary bureaucracies and laws.

For instance, by greatly simplifying the tax code, people would be able to do their own taxes, eliminating the need for tax preparers, and many accountants and tax lawyers. It would also minimize the many economic distortions created by a complicated tax code. So why are not the laws changed to maximize economic efficiency?

Because politicians serve special interests and because most of them do not know economics.

Productive efficiency

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productive efficiency and allocative relationship counseling

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