Efficiency in Markets (Allocative and Productive) Flashcards

1️⃣ Familiarise yourself with the flashcards:

Look through all the flashcards to see what's on both sides.
Make sure you understand the information on each card. If something's unclear, click the link to the revision notes at the bottom of the page for more details.

2️⃣ Test yourself:

Look at the question or prompt on each card and try to remember the answer before flipping it over.
Check the answer and make a note of any cards you find challenging and need to go over more.

3️⃣ Consistently Review and Practice:

Use spaced repetition: spend more time on the cards you struggle with and go over them more often.
Regularly review all the flashcards to help you better understand and retain the information over time.

Note: We may include questions that have multiple correct answers. It's useful to remember specific examples to understand these concepts better.

PERSONALISED 1-TO-1 TUTORING

Get support with clear explanations, practice and feedback (Ages 5 to 16).

Want an ad-free experience? Subscribe to remove ads

What is allocative efficiency?

It is when resources make the goods and services people value most. It is when the price equals the cost of making one more unit.

The extra cost of making one more unit of output.

Compare the price with marginal cost. If they match, it is allocatively efficient.

Making output at the lowest possible cost per unit. There is no waste of resources.

Total cost divided by the number of units made. It is the cost per unit.

Any point on the curve is productively efficient. Points inside the curve are inefficient.

It is the point on the curve that matches what consumers want most. You need demand to choose that point.

Rival firms cut price to win buyers, so price moves toward marginal cost. Firms make what consumers want.

They restrict output and set a price above marginal cost. Too little is made for society.

With little pressure to cut costs, they may not produce at the lowest cost per unit.

Use better technology. Train staff. Reduce waste. Spread fixed costs over more output.

Allocative is about making the right mix of goods. Productive is about making goods at the lowest cost.