The marginal efficiency of capital displays the expected rate of return on investment, at a particular given time. The marginal efficiency of capital is compared to the rate of interest. Keynes described the marginal efficiency of capital as: “The marginal efficiency of capital is equal to that rate of discount which would make the present …
Concentration ratio refers to the market share of the largest firms in an industry. For example, a five-firm concentration ratio of 65% means that the five largest firms have more 65% of market sales. If the concentration ratio increased, then one or two firms may start to dominate the market and the firms will be …
Distributive efficiency occurs when goods and services are consumed by those who need them most. Distributive efficiency is concerned with an equitable distribution of resources because of the law of diminishing marginal returns. The Law of diminishing marginal returns states that as consumption of a good increase we tend to get diminishing marginal utility. For …
Definition of Kaldor–Hicks efficiency Pareto efficiency occurs where at least one party benefits and nobody is made worse off. Kaldor Hicks states that a decision can be more efficient – as long as there is a net gain to society – enabling any potential losers to be compensated from the net gain. Example of Kaldor …
X Inefficiency occurs when a firm lacks the incentive to control costs. This causes the average cost of production to be higher than necessary. When there is this lack of incentives, the firm will not be technically efficient. In theory, the firm could have an average cost curve at “Potential AC” but due to organisational slack, …
Readers Question: Pareto efficiency occurs (as you say) ‘when it is impossible to make one party better off without making someone worse off’. Assume (and Economics seems to do this a lot) two people live in the world. One is a multi-billionaire and the other has no money at all. If the rich guy gives …
Technical efficiency is the effectiveness with which a given set of inputs is used to produce an output. A firm is said to be technically efficient if a firm is producing the maximum output from the minimum quantity of inputs, such as labour, capital, and technology. Technical efficiency requires no unemployment of resources. Given a …
Readers Question: Does government increases or decrease economic efficiency. Kindly explain as I have tried to look for the reasons. This is an open-ended question, which raises many different issues. To some, on the political right, it is a simple matter of governments bad, markets good. Others are apt to see the government as a …