4.1.5.8 The dynamics of competition and competitive process

static efficiency

this kind of efficiency is about the optimal resource use at a specific moment

• a “snapshot” view focused on the present

• perfect competition often achieves this by meeting current demand at minimal cost

productive, allocative

What efficiencies fall under static efficiency?

productive efficiency

Goods and services are produced at the lowest cost, minimising waste

allocative efficiency

resources are allocated to maximise consumer satisfaction(P=MC)

dynamic efficiency

considers long-term improvements in productivity and innovation

• monopoly and oligopoly structures may achieve this as they often generate the abnormal profit needed to fund innovation

creative destruction

a process where new innovations replace outdated products, technology, or business models, transforming industries and driving economic progress

renders established companies or tech. obsolete, job losses and decline of certain industries

What is the downside of creative destruction?

fostering long-term economic growth and a more efficient allocation of resources

What is creative destruction essential for?