Efficiency | A-Level Economics Notes

These revision notes cover everything you need to know about Efficiency for A-Level Economics. They're designed for students studying AQA A-Level Economics, Edexcel A-Level Economics, and Edexcel International A-Level Economics. Written by Jaisul Naik, UCL Economics graduate and A-Level Economics tutor since 2017.

What is productive efficiency?

1. productive efficiency is achieved at the quantity where MC=AC
2. this is when firms minimise their average costs
3. this means firms are producing the maximum possible output at the minimum possible cost
4. in the long-run, it means firms are fully able to exploit their economies of scale
5. in a competitive market, firms can pass down lower costs to consumers in the form of lower prices
6. in a non-competitive market, firms could use their economies of scale to increase their market share, and then increease re-investment

What is allocative efficiency?

1. allocative efficiency is achieved at the quantity where MC=AR
2. this is good for consumers because they benefit from an increase in output and a decrease in price
3. this leads to an increase in consumer surplus
4. consumer surplus is the difference between the price consumers pay and the maximum price they would be willing to pay
5. for example, Apple are not allocatively efficient as they set high prices.
6. this means that not that many people are willing and able to buy Apple products

What is dynamic efficiency?

1. dynamic efficiency is achieved when firms make supernormal profit in the long-run
2. this increases re-investment
3. consumers can get access to greater choice and higher quality in the future
4. for example, Apple re-invested most of their profits, which means every few years customers see a massive increase in the quality of their products e.g. Airpods

Summary questions

1. what is productive efficiency?
2. what is allocative efficiency?
3. what is dynamic efficiency?

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