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In microeconomics, economic efficiency, depending on the context, is usually one of the following two related concepts: [1] Allocative or Pareto efficiency : any changes made to assist one person would harm another.
The graph depicts an increase (that is, right-shift) in demand from D 1 to D 2 along with the consequent increase in price and quantity required to reach a new equilibrium point on the supply curve (S). A common and specific example is the supply-and-demand graph shown at right.
The production function is central to the marginalist focus of neoclassical economics, its definition of efficiency as allocative efficiency, its analysis of how market prices can govern the achievement of allocative efficiency in a decentralized economy, and an analysis of the distribution of income, which attributes factor income to the ...
A situation in which the supply of a good or service exceeds its demand within a particular market, often as a result of the current price being below the economic equilibrium. economic system. Also called an economic order. [147] A system of production, resource allocation, and distribution of goods and services within a society or a given ...
In economics and particularly in consumer choice theory, the income-consumption curve (also called income expansion path and income offer curve) is a curve in a graph in which the quantities of two goods are plotted on the two axes; the curve is the locus of points showing the consumption bundles chosen at each of various levels of income. The ...
John Maynard Keynes in 1936 emphasized fundamental factors of a market economy that might result in prolonged periods away from full-employment. [20] [21] In later macroeconomic usage, the long-run is the period in which the price level for the overall economy is completely flexible as to shifts in aggregate demand and aggregate supply.
The income growth caused by increased production volume is determined by moving along the production function graph. The income growth corresponding to a shift of the production function is generated by the increase in productivity. The change of real income so signifies a move from the point 1 to the point 2 on the production function (above).
By doing so, it defines productive efficiency in the context of that production set: a point on the frontier indicates efficient use of the available inputs (such as points B, D and C in the graph), a point beneath the curve (such as A) indicates inefficiency, and a point beyond the curve (such as X) indicates impossibility.