Application Exercise 1j: Efficiency, efficiency, efficiency…
1) This will boost technical efficiency because greater productivity will improve the nation’s ability to produce both (or all) goods and services. In addition, to the extent that the additional goods and services produced are valued by society, it will also result in an increase in allocative efficiency because the nation’s resources are being used in a way that contributes to better overall material living standards.
2) In this situation, the economy is similarly able to produce more goods and services. However, the PPC does not shift. Instead, the point of production in the economy moves from within the boundary – of the PPC and towards the boundary of the PPC (or to the boundary of the PPC). In other words, the starting point is one where the ete Potten economy is producing its goods and services inefficiently. Greater productivity will therefore enable the economy to produce closer to (or at) its productive capacity.
3) This can be achieved by shifting resources away from the production cow of one (or more) goods and services and towards the production of cothers in order to achieve a more allocatively efficient allocation of resources. In other words, this will involve a movement along the PPC which results in better living standards because more goods and/or services are being produced that society wants and/or are in society’s, best interests. For example, if resources are allocated away from the production of guns (e.g. because of the introduction of tighter gun Aloestve Meine nee controls) and towards other produets, such as bicycles, then the nation Dut tecnica eticency will be better off and allocative efficiency increases.
4) This is because the most efficient allocation of resources for a nation (i.e. allocative efficiency) ultimately depends on the tastes and preferences of each nation’s citizens and/or governments. For example, the most efficent allocation of resources for a country like North Korea involves a high proportion of its resources devoted to the production of military goods. In contrast, a country like Australia devotes a higher proportion of its resources to the production of consumer goods.
5) This is related to question 4 because the distinction between normative and positive economics relates to preferences, which are subjective and very between nations. The ‘best’ point on the PPC will therefore be highly subjective and relates to normative rather than positive (fact-based) economics.