Detailed efficiency analysis

Analyse the effect that allocative efficiency has on consumers

Resources follow consumer demand - All consumers demanding the good at the current price have access (No excess demand)

Low price

Consumer surplus is maximised

There is lots of choice for consumers

High quality goods

Analyse the effect that allocative efficiency has on producers

Retain their market share or possibly increase their market share as they sell more goods

Stay ahead of their rivals with all of the benefits on consumers

They could also increase their profits as all of these consumer benefits will attract more consumers in turn to their product

Analyse the effect that productive efficiency has on consumers

As average costs are low through economies of scale being fully exploited this may be passed onto consumers through a price reduction

Lower price leads to more consumer surplus

Analyse the effect that productive efficiency has on producers

Producers increase production at a lower AC

Lower average costs increase profit margins which leads to the firm increasing their profit

As firms increase quantity produced/ demanded (through lower pricing) they increase their market share

Analyse the effect that dynamic efficiency has on consumers

New innovative products through investment

Lower prices as firms buy and invent new technology and production techniques lowering LRAC and/or increasing MRP through increased productivity

Lower prices leads to consumer surplus increasing

Analyse the effect that dynamic efficiency has on producers

Leads to firms profit maximising in the long run as they decrease their LRAC increasing profit margins and therefore profit

Costs decreasing over time (LRAC specifically)

Retain / increase market share with new leading products which consumers are attracted by

Rivals cannot copy these innovations if they acquire a patent for new technology or products they can stay ahead of their rivals

Analyse the effect that x-efficiency has on consumers

Lower prices - firms keep their costs down so they can pass it on to consumers through lower prices

Lower prices = more consumer surplus

Analyse the effect that x-efficiency has on producers

Lower costs as firm minimises their costs

which increases profit margins and therefore profit

So they can offer lower prices which increases the quantity demanded allowing them to increases their market share