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Introduction to efficiency concepts in economics

Charlie Ben-Nathan

on 10 February 2011

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Transcript of Lat-Econ-Efficiency

Can we see it on a graph? What is it? Efficiency Making the best use of our resources Why? To make people happy Hey!
Utility How can we talk about it? "The most output from the least input.
That must be efficient, right?" No! You can't have a maximum from a minimum - which would you pick? The minimum input is zero - you'll get nothing from that! That's crazy talk! Fix something Fix output Fix input Using the minimum amount of inputs to get a set output. Getting the maximum amount of outputs from a set intput. Choose life. Choose a job. Choose a career. Choose a family. Choose a f***ing big television, Choose washing machines, cars, compact disc players, and electrical tin openers. Choose good health, low cholesterol and dental insurance. Choose fixed- interest mortgage repayments. Choose a starter home. Choose your friends. Choose leisure wear and matching luggage. Choose a three piece suite on hire purchase in a range of f***ing fabrics. Choose DIY and wondering who you are on a Sunday morning. Choose sitting on that couch watching mind-numbing sprit- crushing game shows, stuffing f***ing junk food into your mouth. Choose rotting away at the end of it all, pishing you last in a miserable home, nothing more than an embarrassment to the selfish, f***ed-up brats you have spawned to replace yourself. Choose your future. Choose life... But why would I want to do a thing like that?

This isn't... So we are looking for low costs per unit This is Productive
Efficiency More efficient cars have more miles per gallon We might also look at output per worker Ultimately, we might want to get the maximum happiness that we can from the set amount of resources in our economy. Now that's what I'm talking about! So, use our resources wisely we must. If we can get the right amount of resources ... ... allocated to each industry... We will be Allocatively Efficient As well as making things productively efficiently we are making the right things To be productively efficient we must produce at the lowest point on Average Cost To be allocatively efficient production should be where MC= AR Can you remember why MC = supply? Why should Demand = Marginal benefit? You are inside the PPF Sigh... What sort of efficiency is lacking? Productive Efficiency If we are on the PPF we are making things efficiently, but are we making the right things? To see this on a PPF we need indifference curves.
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