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?
- productive efficiency is achieved at the quantity where MC=AC
- this is when firms minimise their average costs
- in the long-run, this means that firms are able to fully exploit their economies of scale
- in a competitive market, firms can pass down lower prices to consumers.
- in a non-competitive market, firms could use their economies of scale to increase their market share, and then increase profits and re-investment
What is allocative efficiency?
- allocative efficiency is achieved at the quantity where MC=AR
- this is good for consumers because they benefit from an increase in output and a decrease in price
- this means that consumer surplus is maximised.
- consumer surplus is the difference between the price consumers pay and the maximum price they would be willing to pay
- for example, Apple are not allocatively efficient as they set high prices.