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Lecture 10 - Introduction to Introduction Economics...

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© Gustavo Indart Slide 1 ECO 100Y ECO 100Y Introduction to Introduction to Economics Economics Lecture 10: Lecture 10: Efficiency and Efficiency and Government Intervention Government Intervention
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© Gustavo Indart Slide 2 Productive and Allocative Productive and Allocative Efficiency Efficiency Efficiency implies both productive efficiency and allocative efficiency Productive efficiency requires that all resources are used productively to maximize output ¾ That is, it requires resources not be wasted Allocative efficiency requires that the proper output- mix be produced ¾ That is, it requires a proper allocation of resources among different industries
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© Gustavo Indart Slide 3 Productive Efficiency Productive Efficiency Productive efficiency has two aspects: ¾ production within each firm ¾ allocation of production among firms in an industry Productive efficiency for the firm requires that the firm produces any level of output at the lowest possible cost ¾ In the long-run, this implies that the firm must choose the least costly combination of the factors of production Productive efficiency for the industry requires that marginal cost be the same for all firms ¾ This implies that each additional unit of output must be supplied by the firm with the lowest marginal cost
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© Gustavo Indart Slide 4 Productive Efficiency for
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