IGCSE Economics Paper-1: Specimen Questions with Answers 10 - 10 of 64

Question 10

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Essay▾

What do you mean by productive and allocative efficiency?

Explanation

Productive Efficiency: Productive efficiency denotes the production possibility curve. It is the locus of all those combinations of two goods that a producer can manufacture with the full utilization of the available resources. The curve is also known as a transformative curve, a production frontier curve, a product substitution curve or an opportunity cost curve. As the producer moves from one point to another, he scarifies one unit of a commodity-Y to get one more unit of commodity-X. All points on the curve AB, i. e. C, D, and E denote the productive efficiency of a firm.

Image of Commodity-Y

Image of Commodity-Y

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  • Allocative Efficiency: Allocative efficiency is concerned with that level of production where marginal cost of production is equal to price of a good. It is related to the distribution and allocation of resources.
  • When resources are allocated in an optimal manner and their marginal costs are equal to marginal utility. Point E shows allocative efficiency because at this point marginal utility is equal to marginal cost.
    Allocative Efficiency

    Allocative Efficiency

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