1. Economic efficiency (1) Lesson aims: To understand the difference between productive and allocative efficiency To know the difference between static and dynamic efficiency To apply efficiency theory to the PPF

2. Starter (3 minutes): 1.Define ‘efficiency’? 2.What is ‘productive efficiency’? 3.What is ‘allocative efficiency’?

3. Static and dynamic efficiency Static efficiency is efficiency at a point in time Dynamic efficiency is efficiency over a period of time

4. Productive and allocative efficiency Productive efficiency is where production takes place at the least cost (or minimum cost or optimum level of output) – at the lowest point on the AC curve Allocative efficiency is where resources are allocated to the goods and services demanded by consumers (sometimes said to be where P=MC)

5. Economic efficiency Using your notes and the book, answer the following to show what you know about economic efficiency: 1.Draw fig. 1 to help explain productive efficiency 2.What is ‘x-inefficieny’ or ‘organisational slack’? 3.Use an example and fig. 2 to help explain allocative efficiency 4.How can you use efficiency in welfare economics? 5.What are ‘marginal utility’ and ‘marginal cost’? 6.What is ‘Pareto efficient’?

6. Draw a PPF and label it

7. Efficiency and the PPF What is the PPF? Look at Fig.3, p.369 Explain the similarities between points A,B,C,K&L; D,E&F and G,H&I Draw and explain this

8. Question 1, p.368 Question 2, p.369 (8)

9. So… What is the difference between static and dynamic efficiency? What is the difference between productive and allocatively efficiency? Where is a firm productively efficient? Where is a market allocatively efficient? What is x-inefficiency? What is marginal utility? How can efficiency be linked to the PPF?