Allocative Efficiency and Dynamic Efficiency - 1114 Words

Efficiency is to fulfil the needs and wants of consumers by making optimal use of scarce limited resources. There are several meanings of efficiency and all are linked to how well a market shares scarce resources to satisfy consumers. The two of the terms within efficiency going to illustrate are allocative efficiency and dynamic efficiency. Allocative efficiency Allocative efficiency looks into the goods and services that match the changing consumers’ needs and preferences, reflecting on the price willing to pay. Allocative efficiency is reached when there is no one made better off without making someone else worse off. The condition required for allocative efficiency is when the value in which consumers place on a good or service equals the cost of resources being used up in production, total economic welfare is maximised. In the diagram to the side, at P1 and output Q1 the market is balanced, at this point the total area of producer and consumer surplus is maximised. If suppliers would limit the output shown on Q2 and increase the market price to P2, sellers will be gaining more producer surplus by expanding their profit margins. By doing this there would be a bigger loss of consumer surplus. Therefore to sum this diagram P2, Q2 is not an allocative efficient distribution of resources for this market, whereas P1, Q1 he market stability price is considered to be allocative efficient. There are many diverse market structures at presence. Allocative efficiency is aShow MoreRelatedExplain, and Illustrate Using Graphs, Whether You Think a Perfectly Competitive Industry or a Monopoly Industry Leads to More Efficient Outcomes for an Economy1740 Words   |  7 Pagesrelevance to this, the analysis of perfect competition and monopoly regarding efficiency is considered one of the most core basis to the understanding of Microeconomics. This paper argues that a perfectly competitive industry leads to more efficient outcomes for an economy than a monopoly does. In this essay, I will first define the concept of two market structure types and then go on to explore how they affect the level of efficiency and economic welfare. Alternatively, I will also bring up some exceptionsRead MoreCompetition Policy : Theory And Practice1477 Words   |  6 Pagesmarket compared with a perfect competitive market. The sum of decline of consumer surplus and producer surplus is known as deadw eight loss (DWL) because the real price and output do not reach the most optimal price and output. a loss of economic efficiency that can occur when equilibrium for a good or service is not achieved or is not achievable. 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From this perspective, it is clear that lowering barriers to entry or preventing tha t theseRead MoreThe Concept of Equity of Access in the Australian Healthcare System2439 Words   |  10 PagesEffectiveness and efficiency and any interrelation that may exist. 1. Introduction: As Stated in the National Health Reform Agreement-Equity of Access is the fundamental base of the Australian Health Care System (DHA. 2013a). Effectiveness, which focuses on ratio of outputs to outcomes and efficiency, which defines as achieving maximum outputs with available inputs or resources, these are other elementary aspects of the Australian Health Care System. Equity, effectiveness and efficiency these representsRead MoreNotes On The Meaning Of Efficiency1009 Words   |  5 PagesYasir Abidi Econ 415 11/15/2016 Short Paper 3: The Meaning of Efficiency in Organizations Efficiency is the ability of an entity to use alternative methods of production to get better outcomes. It is applied in production where equal input which relates to cost is lower compared to output in an organization. Allocative efficiency ensures that the correct mixture of input to get maximum output (Palmer Torgerson, 1999). The study of economics means that there are limited resources to produce forRead MoreCosts And Benefits Of Monopoly1131 Words   |  5 Pagesinnovation. A firm that does not face much competition has little incentive to make products efficiently with minimal waste, thus causing a deadweight loss as show in Figure 1. If the monopolist increased production from Qm to Qc through increased efficiency, the area ABC can be gained by the consumer through both lowered costs and increased supply. A great example of how a monopoly can reduce innovation, is Microsoft. It has monopoly power in the operating systems industry and in order to ensureRead MoreEvaluate the Effectiveness of Australian Government Economic Policies in Achieving Their Objectives1930 Words   |  8 Pagesachieving the three aims of: †¢ Allocative efficiency: Achieving allocative efficiency, i.e. a more efficient allocation of resources, promotes structural change by allowing resources to flow to those areas where they are used more efficiently. †¢ Technical efficiency: To maximise efficiency and minimise production costs, there could be the incentive to adopt the latest production technology and use the ‘least cost combination’ of resources. †¢ Dynamic efficiency and innovation: It is of benefitRead More1. Discuss using examples from a leisure industry of your choice, the extent to which competition creates efficiency.1523 Words   |  7 Pageschoice, the extent to which competition creates efficiency. There are many ways in which a firm or leisure industry can be considered to be efficient. First of all they may be productively efficient. This is where they would be operating at their lowest average cost, meaning they are benefiting from all economies of scales and experience no diseconomies of scale. They particularly must avoid any waste of factors of production. Allocative efficiency exists when the firm is operating where Price is