Explain, using a Production Possibility diagram, economic efficiency
Block Type
Knowledge Checkpoint
Knowledge checkpoint: Answer these actual Higher Economics exam questions:
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Explain, using a Production Possibility diagram, economic efficiency (Worth 3 marks)
Diagram:
(Economically efficient) point indicated on curve (1).
Explanation:
Producing goods and services at points inside the boundary is inefficient as some resources are underutilised (1), while points on the boundary eg point A represent economic efficiency (1), and points outside the boundary are not possible with current resources (1).
Economic efficiency (eg point A on the diagram) which is when all resources are allocated in the best way with minimum waste (1).
No opportunity cost is incurred when moving from a point within the boundary to a point on the boundary as this simply indicates a more efficient use of resources (1).
Economic efficiency includes being technically/ productively efficient ie producing maximum output from minimum input (1). This in combination with allocative efficiency creates economic efficiency(1).
