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Economics explained



Economic efficiency

Economic efficiency

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The fundamental economic problem is explained as the difficulty of having limited or scarce resources with which to do an infinite number of things. This leads to the need to make choices.

Economic efficiency is said to exist when it could be judged that all of our scarce resources are being used in the ‘best’ possible way. This means that the greatest possible level of infinite wants is being met with those scarce resources.

Economic efficiency is a situation where each good is produced at the minimum cost and where individual people and firms get the maximum benefit from their resources.

The profit motive encourages firms in the free market to be more efficient in order to produce at the lowest price and to minimise wastage.

These firms may thus achieve :

Productive efficiency

Allocative efficiency

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