Examples of Productive Efficiency in the following topics:
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- Productive efficiency occurs when production of a good is achieved at the lowest resource cost possible, given the level of production of other goods.
- Production efficiency occurs when production of one good is achieved at the lowest resource (input) cost possible, given the level of production of the other good(s).
- By improving these processes, an economy or business can extend its production possibility frontier outward, so that efficient production yields more output.
- This chart shows production possibilities for production of guns and butter.
- Point X is only possible if the means of production improve.
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- Economic efficiency is the use resources to maximize the production of goods; externalities are imperfections that limit efficiency.
- In economics, the term "economic efficiency" is defined as the use of resources in order to maximize the production of goods and services.
- Externalities directly impact efficiency because the production of goods is not efficient when costs are incurred due to damages.
- Efficiency also decreases when potential money earned is lost on non-paying third parties.
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- Both types of firms' profit maximizing production levels occur when their marginal revenues equals their marginal costs.
- Productive efficiency occurs when a market is using all of its resources efficiently.
- This occurs when a product's price is set at its marginal cost, which also equals the product's average total cost.
- In a monopolistic competitive market, firms always set the price greater than their marginal costs, which means the market can never be productively efficient.
- This occurs when a product's price equals its marginal benefits, which is also equal to the product's marginal costs.
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- Free markets iterate towards higher levels of allocative efficiency, aligning the marginal cost of production with the marginal benefit for consumers.
- The amount of value generated in a market that efficient equals the social value of the produced output minus the value of resources used in production.
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- Efficiency wage theory is the idea that firms may permanently hold to a real wage greater than the equilibrium wage.
- However, firms may choose to pay wages higher than the market-clearing equilibrium in order to incentivize increased worker productivity or to reduce turnover.
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- The benefits and cost associated with the production or consumption of any good falls only on the agents engaged in the contract or transaction.
- Voluntary markets of goods with nonattenuated property rights are consistent with the Utilitarian Ethic and Pareto Efficiency.
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- Efficiency is the measure of how well one achieves objectives given a set of constraints.
- Efficiency is not in and of itself the objective.
- Technical efficiency can be considered in the production of a single good.
- In the transformation or production possibilities model, technical efficiency lies on the transformation or production possibilities frontier.
- The economically efficient solution must lie on the production possibilities function.
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- Trading-partners reap mutual gains when each nation specializes in goods for which it holds a comparative advantage and then engages in trade for other products.
- In other words, each nation should produce goods for which its domestic opportunity costs are lower than the domestic opportunity costs of other nations and exchange those goods for products that have higher domestic opportunity costs compared to other nations .
- Efficiency gains: Domestic firms will be forced to become more efficient in order to be competitive in the global market.
- Benefits of increased competition: A greater degree of competition leads to lower prices for consumers, greater responsiveness to consumer wants and needs, and a wider variety of products.
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- If the product (apples) is price inelastic to the consumer (whereby if price rose, a small demand loss would be accounted for by the extra revenue), the farmer is able to pass the entire tax on to consumers of apples by raising the price by $1.
- On the other hand, if the apple farmer is unable to raise prices because the product is price elastic (if prices rose, more demand would be lost than extra revenue gained), the farmer has to bear the burden of the tax or face decreased revenues: the tax incidence falls on the farmer.
- When the tax incidence falls on the farmer, this burden will typically flow back to owners of the relevant factors of production, including agricultural land and employee wages .
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- Ethics is the study of the process by which an objective (and/or the means used) is judged "right or wrong. " Efficiency is a measure of the extent to which an objective is achieved.
- Efficiency can only be used to evaluate the means used to achieve a goal or end.