Market Efficiency

Market Efficiency

Contributors
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Carys Brown

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Efficiency
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An efficient economy utilises the limited resources available to maximise its output and, in turn, the welfare of those living within the economy. Efficiency is related to scarcity, as the limited resources available to producers must be employed to reduce waste or inefficiencies. If these are limited, people's living standards will rise. 

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Types of Economic Efficiencies
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  • Productive/Technical Inefficiencies: This refers to how there may be inefficiencies present in the production process of a good or service. This makes the process wasteful and causes higher costs for producers. 

  • Allocative Inefficiencies: This type of inefficiency refers to the price of a product being set higher than the amount that consumers value the good. 

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Market Efficiency
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Production Possibility Curves

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Production possibility Curves/ Frontiers (PPC/PPF) are models which show the output of two goods produced within a market or economy. IN the model shown above, the points demonstrated show how and where inefficiencies occur. The actual curve represents the maximum output possible. In order for production to exceed this curve, the company needs to gain more resources or invest in better machinery or technology. 

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