Answered: Explain the difference between…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Explain the difference between productive and allocation efficiency. How do you think a centrally planned economy versus a market economy would perform under each measure of efficiency

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Productive efficiency is the optimal way to produce goods and services at the lowest possible cost, while allocative efficiency deals with the optimal distribution of goods and services. In an economy, it might be effectively productive, but it may not be allocatively efficient. For example, it may be productively efficient to produce a large quantity of gloves at a lower cost, but if they were for the left hand, it would be allocatively inefficient because no one would benefit from this low production cost.

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