ECON 3840 Lecture Notes - Lecture 3: Social Welfare Function, Pareto Efficiency, Allocative Efficiency

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3 May 2017

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Efficiency in production: labour, land, human capital: production function depicts the maximum output that can be produced from a given set of inputs using currently available technology. A production process is not technically efficient if answer to eithe(cid:396) of the (cid:395)uestio(cid:374) is (cid:858)yes(cid:859). Cost- effectiveness efficiency: requires producing a good using the least cost method from among all technically efficient methods. For instance, it is cost effective to produce a house using labor intensive techniques is labor in that country is relatively cheap. Ppf- shows the maximum combinations of two goods that society can produce given its available resources and production technologies. All points on the production possibility frontier are technically efficient. However, points inside the curve are technically inefficient. The ppf can be used to show the opportunity cost of production. Allocative efficiency requires that society produce and distribute goods and services in accord with the value that individuals place on those goods and services.

Related Questions

A dressmaker can sew 1,300 garments with 200 bolts of fabric and 2,300 hours of labor. Another dressmaker can sew 1,300 garments with 100 bolts of fabric and 3,000 hours of identical labor. Fabric costs $110 a bolt and labor costs $30 an hour.

a. Is it possible for both methods to be technically efficient? Why or why not?

-	Yes, because neither dressmaker is using more of both inputs to produce the same number of garments.
-	Yes, because both dressmakers make the same number of garments.
-	No, because the first dressmaker uses 2,300 hours of labor while the second dressmaker uses 3,000 hours of labor. This means that the first dressmaker has higher productivity and therefore is the only one who is technically efficient.
-	No, because the cost of the garments for the first dressmaker is $91,000. The cost of the same number of garments for the second dressmaker is $101,000. Therefore, the first method is technically efficient.

b. Is it possible for both methods to be economically efficient? Why or why not?

-	No, because the second method has lower total costs of production.
-	Yes, because even though their costs differ, the higher-cost dressmaker may be able to sell the garments at a higher price.
-	Yes, because the dressmakers will sell the garments for the same price.
-	No, because the first method has lower total costs of production.

Table 1.1 shows the maximum possible output combination of bikes and laptops using all resources and the currently available technology in country Alfa.

Table 1.1:

Possible Output Combination	Quantity of bikes	Quantity of laptops
A	1700	0
B	600	2200
C	500	2400
D	400	2600
E	0	3400

Graph the country’s Production Possibility Frontier. Present bikes on the horizontal axis and laptops on the vertical axis.
Is combination D efficient or not? Explain your answer.
Add combination F (300, 1000) on your graph and determine if it is efficient or not. Explain your answer.
What is the opportunity cost of bikes when we move from B to C? Explain your answer.
Suppose that the country invests in a new technology to produce laptops, show the possible change to the PPF.

jadewhale921

113. A production possibilities frontier shows the
A) the maximum attainable combinations of two goods that can beproduced with the available resources.
B) combinations of two goods that consumers desire most.
C)maximum output of two goods that can be produced with an unlimitedquantity of resources.
D) demand for two goods.

114. Being on the production possibilities frontier implies thatmore of one good can be produced only by
A) decreasing the quantity of the other good produced.
B)increasing the quantity of the other good produced.
C) lowering the price of the good.
D) raising the price of the good.
E) None Of The Above

116. An output combinationis technically efficient if
A) it is possible to produce more of all goods.
B) it is possible toproduce more of one good without producing less ofanother.
C) it is not possible to produce more of one good without producingless of another.
D) it is not possible to produce more of one good at any cost.

117. Suppose in an economysome resources are not utilized in their most productive use. Ifsociety decides that it wants more of onegood,
A) it will have to increase the quantity of resources in theeconomy.
B) it will have to give up production and consumption of some othergood.
C) it can only do so iftechnology advances.
D) it can achieve this without giving up another good by employingthe under-utilized resources. E) None Of TheAbove

118. In the productionpossibilities frontier framework, unemployment is representedby
A) an inward shift of thecurve.
B) a point located inside the curve.
C) a point located outside the curve.
D) a point located on the curve

119. Which of the followingwould not shift a nation's production possibilities frontier?
A) a liberal immigrationpolicy that welcomes foreign labor
B) an increase in a nation's capital stock
C) discovery of oil, a vital input in the production process
D) an increase in the general price level.

132. If the price of SUVswere to increase, we would expect:
A) the demand for gasoline to increase.
B) the demand for gasoline to decrease.
C) the supply of gasoline to increase.
D) the supply of gasoline to decrease.
E) both B and D to occur.

E) None Of TheAbove

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ECON 3840 Lecture Notes - Lecture 3: Social Welfare Function, Pareto Efficiency, Allocative Efficiency

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