Static efficiency is concerned with the most efficient combination of resources at a given point in time.
For example, static efficiency involves the concept of productive efficiency – producing at the lowest point on the short run average cost curve – given existing resources and factor inputs.
Static efficiency is also concerned with allocative efficiency – the best distribution of resources in an economy.
However, in addition to a static concept of efficiency, there is also a dynamic efficiency. This is concerned about the development of better technology and working practises which improve the efficiency of production over time.
For example, in the 1920s, the Ford motor factor were very efficient for that particular year. However, compared to later decades we cannot say that the production methods of the 1920s were efficient. In other words, it is important for firms to make best use of given resources. But, they also need to develop greater use of resources over time.
Economists have sought to evaluate which is most important Static or dynamic efficiency. Traditionally neo-classical economics has placed greater stress on static efficiency to the detriment of dynamic factors
Static vs Dynamic Efficiency
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