Practise applying productive, allocative, Pareto and dynamic efficiency tests and explaining market failure through externalities, information, public goods and market power.
The diagram shows a production possibility curve (LM) for an economy producing agricultural goods and manufacturing goods.
What can be concluded from the diagram?
The economy must be allocatively efficient at point R.
The economy is Pareto efficient at point T.
The economy is productively efficient at point S .
The opportunity cost is constant as we move from L to M.
The diagram shows the cost and revenue curves for a firm.
At which price does allocative efficiency occur?
A
Option A shown in diagram
B
Option B shown in diagram
C
Option C shown in diagram
D
Option D shown in diagram
What is most likely to lead to a Pareto-optimal outcome?
offering bulk-buy discounts to customers who join a loyalty scheme
switching labour from producing low-priced products to producing high-priced products
switching production from labour-intensive products to capital-intensive products
training low-skilled workers to operate machinery effectively