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Q.1 Discuss how can exist production be more efficiently used?
Productive Efficiency
Productive efficiency can be defined as, or achieved by, producing at a minimum cost. By producing at a minimum cost, FEWER RESOURCES are used and MORE can be produced. This reduces scarcity and gives us more satisfaction from our existing resources. We can produce at a minimum cost and achieve productive efficiency by:
a. Not using more resources than necessary
b. Using resources where they are best suited
c. Using appropriate technology
A PPF typically takes the form of the curve on the right. An economy that is operating on the PPF is said to be efficient, meaning that it would be impossible to produce more of one good without decreasing production of the other good. In contrast, if the economy is operating below the curve, it is said to be operating inefficiently because it could reallocate resources in order to produce more of both goods.
For example, assuming that the economy's available quantity of factors of production does not change over time and that technological progress does not occur, then if the economy is operating on the PPF production of guns would need to be sacrificed in order to produce more butter. If production is efficient, the economy can choose between combinations (i.e., points) on the PPF: B if guns are of interest, C if more butter is needed, D if an equal mix of butter and guns is required.
In the PPF, all points on the curve are points of maximum productive efficiency (i.e., no more output of any good can be achieved from the given inputs without sacrificing output of some good); all points inside the frontier (such as A) can be produced but are productively inefficient; all points outside the curve (such as X) cannot be produced with the given, existing resources. Not all points on the curve are Pareto efficient, however; only in the case where the marginal rate of transformation is equal to all consumers' marginal rate of substitution
Productive Efficiency
Productive efficiency can be defined as, or achieved by, producing at a minimum cost. By producing at a minimum cost, FEWER RESOURCES are used and MORE can be produced. This reduces scarcity and gives us more satisfaction from our existing resources. We can produce at a minimum cost and achieve productive efficiency by:
a. Not using more resources than necessary
b. Using resources where they are best suited
c. Using appropriate technology
A PPF typically takes the form of the curve on the right. An economy that is operating on the PPF is said to be efficient, meaning that it would be impossible to produce more of one good without decreasing production of the other good. In contrast, if the economy is operating below the curve, it is said to be operating inefficiently because it could reallocate resources in order to produce more of both goods.
For example, assuming that the economy's available quantity of factors of production does not change over time and that technological progress does not occur, then if the economy is operating on the PPF production of guns would need to be sacrificed in order to produce more butter. If production is efficient, the economy can choose between combinations (i.e., points) on the PPF: B if guns are of interest, C if more butter is needed, D if an equal mix of butter and guns is required.
In the PPF, all points on the curve are points of maximum productive efficiency (i.e., no more output of any good can be achieved from the given inputs without sacrificing output of some good); all points inside the frontier (such as A) can be produced but are productively inefficient; all points outside the curve (such as X) cannot be produced with the given, existing resources. Not all points on the curve are Pareto efficient, however; only in the case where the marginal rate of transformation is equal to all consumers' marginal rate of substitution