16113456
Description
Mind Map by Paarth Agarwal, updated more than 1 year ago
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Created by Paarth Agarwal
about 7 years ago
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Allocative Efficiency
- Definition
- This exists when a set of
resources is used to
produce the goods and
services which people
want
- AR = MC
- AR = MC
- This exists when a set of
resources is used to
produce the goods and
services which people
want
- Perfect Competition
- Are allocatively
efficient as well
as profit
maximising firm
- They operate at point where demand equals supply
- They operate at point where demand equals supply
- Are allocatively
efficient as well
as profit
maximising firm
- Monopoly
- Not allocatively
efficient as they are
profit maximising
firm
- The main assumption
is that monopolies put
up price and lower
output
- This means consumer surplus is
reduced and some producer
surplus is removed
- There's an overall rise in producer surplus.
- Diagram on the left shows deadweight loss welfare
- Since monopoly is industry the green area
shows no goods are sold at that price and no
firm makes that many goods/services
- Again this is because monopolies are profit maximisers
- Again this is because monopolies are profit maximisers
- Since monopoly is industry the green area
shows no goods are sold at that price and no
firm makes that many goods/services
- Diagram on the left shows deadweight loss welfare
- There's an overall rise in producer surplus.
- This means consumer surplus is
reduced and some producer
surplus is removed
- The main assumption
is that monopolies put
up price and lower
output
- Growth Maximising
Monopolies may
operate allocatively
efficient
- Not allocatively
efficient as they are
profit maximising
firm
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