Question

distinguish between production efficiency and market efficiency

Answer 1

What is the difference between productive and allocative efficiency?

These are two concepts are very important in economics for weighing the desirability of the market.
Productive efficiency is when a company produces at the lowest point on its Average Cost Curve, this means that it produces the quantity of goods that minimises the cost of production per unit. [Draw graph]. It is efficient because a firm cannot produce more of one good without producing less of an other.
Allocative efficiency is when the distribution of goods in a market is optimal for society. This occurs where the price of each good is equal to the marginal cost of producing it. [Draw graph]. This is because if the price is £10 and the marginal cost is £8 then there will be consumers willing to buy it for £9 whose demand is not met. This means that there is inefficiency.
Perfect competition leads to both allocative and productive efficiency whereas a monopoly may not.

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Answer 2

Answer:

Productive efficiency is concerned with the optimal method of producing goods; producing goods at the lowest cost. Allocative efficiency is concerned with the optimal distribution of goods and services.