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Economics explained



Productive efficiency

Productive efficiency

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Competitive firms are productively efficient, which means that they produce these goods and services at the lowest possible cost.


The profit motive... a free market may encourage firms to achieve productive efficiency

Productive efficiency can be achieved through innovation and the development of more advanced technology in the production process.

Productive efficiency can be shown using a production possibly curve

Point X

The problem with point X is that more products could be made with the resources available. In other words, the goods are not being produced using the least possible resources: this is productive inefficiency.

Point Y

At point Y, it is not possible to produce any more because of the scarce resources that are available to the economy. The minimum possible resources are being used to make the products. This is thus a point of productive efficiency.

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