The primary issue in economics exists in the efficiency concerning scarcity of resources. Efficiency as a concept attempts to discuss the optimal production, allocation and consumption of these resources. There are various kinds of efficiency in economics. Some of these include productive, social, allocative, and technical efficiency. This paper discusses productive efficiency as compared to allocative efficiency.
Productive efficiency is a kind of efficiency that happens when an economic agent uses a given level of inputs to produce the maximum level of output. McEachern (2008) believes that the condition occurs on the production possibility frontier (PPF) schedule. On this curve, it would be hard to produce additional units of a product without producing less of other products. Productive efficiency would also happen at the lowest possible point on the agent’s AC curve. It requires that all economic actors conduct their operations using the best possible managerial and technological processes. An economy that improves these processes extends its frontier for more output and productive efficiency (McEachern, 2008).
On the contrary, allocative efficiency implies that an economy is at its optimal best in satisfying needs using scarce resources. According to McEachern (2008), this type of efficiency is all about social welfare and addressing the issue of scarcity. Countries must achieve technical efficiency for them to reach allocative efficiency. Note that technical efficiency implies that society receives optimal production given available resources. In this case, there is minimal or no wastage in the production process (McEachern, 2008).
In conclusion, productive efficiency happens when economies are maximizing their output given current resources. The concept is present on the current production possibility frontier. However, a productively efficient equilibrium may fail the allocative efficiency test. Therefore, it does not always follow that an economy maximizes its social welfare by maximizing its production.
BIBLIOGRAPHY
McEachern, W., 2008. Economics: A Contemporary Introduction. 8th ed. Boston, MA: Cengage Learning.
