Economics A Level, Year 2 - Chapter 1

Economics A Level Year 2 – Chapter 1
CONTENT
Basic Economic ideas and Resource Allocation
Efficient resource allocation
Externalities and market failure
Social costs and benefits; cost-benefit analysis

,  Efficient resource allocation
ALLOCATIVE EFFICIENCY
- Maximum social welfare and maximum
utility
- P=MC –> the value consumers place on a
PRODUCTIVE EFFICIENCY good equals the cost of resources
- Minimum point on the ATC curve - Consumer and producer surplus are
- Minimises wastage of FOP maximised
- Produces at the point on the PPC
- Produces more of one good only
by decreasing production of
another



Efficiencies
SOCIAL EFFICIENCY
- This is the point where
social welfare is maximised
DYNAMIC EFFICIENCY
- Where MSB=MSC
- Mixes productive and allocative
efficiency with innovation in the long run
- Consumer demands met as time goes on X-INEFFICIENCY
- Recognises there can be a trade-off - When more inputs than are
between the short run and long run necessary are used for a given level
PARETO OPTIMALITY:
of outputThis is when
there is an optimal
- Moreallocation of with monopolies
likely to occur
resources. It is impossible to allocate resources to benefit one person without
making another person worse off.




 Externalities and market failure