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The paper shows how economic efficiency is the point where economic transactions are yielding maximum satisfaction to both consumers and producers, and an attempt to set a price below or above the efficient point causes the satisfaction level to go down and creates deadweight loss. The paper describes how this deadweight loss results in inefficiency in terms of consumer and producer surplus maximization. The paper includes several figures to illustrate these concepts.
From the Paper:"The allocative efficiency is always achieved at a point where the minimum amount of effort produces the maximum result. In other words, any change in resources are not going to increase the output because the currently employed resources are producing the maximum output. If there is room for increasing production by changing the resource allocation, then the point of allocative efficiency is not achieved. In figure 2, the point "C" is not allocative efficiency because resources are underemployed and output can be increased by employing more resource. However, Point "A" and "B" are both allocative efficient because resources are producing the maximum output. There is no room for the increase of the production at this point until there is technology advancement or increase in the population, both of which are long-term considerations.
"Economic efficiency can be looked at from another point of view. Economic efficiency can be described as something that maximizes the benefit of a transaction for both producers and consumers. The benefits for consumer and producers can be looked upon as consumer and producer surplus. Consumer surplus is difference between the total prices that consumers are willing to pay for a product and what they actually pay for it."
Sample of Sources Used:
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- Sloman, John. Economics. New York: Prentice, 2003.
- Times, Indian. "Economic Times." 2012. http://economictimes.indiatimes.com/news/news-by-company/corporate-trends/indian-ceos-concerned-over-proposed-carbon-tax-by-australia/articleshow/12150421.cms (accessed March 5, 2012).
Cite this Term Paper:
Economic Efficiency (2012, June 08) Retrieved May 18, 2013, from http://www.academon.com/term-paper/economic-efficiency-151360/
"Economic Efficiency" 08 June 2012. Web. 18 May. 2013. <http://www.academon.com/term-paper/economic-efficiency-151360/>