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
How is dynamic efficiency represented on a diagram?
a downward move to the minimum point of a long-run average cost curve
a downward shift in the long-run average cost curve
a move from a point inside a production possibility curve to a point on it
a reduction in marginal revenue so that it equals long-run marginal cost
What arises in situations where there are costs or benefits associated with a transaction that are not fully reflected in market prices?
allocative efficiency
allocative inefficiency
productive efficiency
productive inefficiency
What is not a source of market failure?
imperfect information
income inequality
monopoly
non-excludability