Topic Three (1.3): Efficiency and Market Failure

Introduction

In this topic, you will learn how to define productive and allocative efficiency and how to explain the conditions needed for them. You will also be introduced to Pareto optimality and dynamic efficiency. Finally, you will explore the meaning of market failure and the reasons for it.

Task

Economics in Context

  • Read the article on page 318 of the textbook and consider the fuel efficiencies and the negative effects of emissions on climate change of different aircrafts manufactured by Boeing and Airbus.
  • Further guidance and suggested answers can be found in the digital textbook and in General Resources.

Watch

Watch these videos on productive and allocative efficiency and make notes.

WATCH – Economic Efficiency (YouTube) Links to an external site.

WATCH – Allocative Efficiency (YouTube) Links to an external site.

WATCH – Productive Efficiency (YouTube) Links to an external site.

WATCH – Pareto Efficiency and Pareto Improvements (YouTube) Links to an external site.

WATCH – Dynamic Efficiency (YouTube) Links to an external site.

Read and Make Notes

Read and make notes from the following sections of the textbook on pages 318 to 323:

    • 32.1 Introduction to efficiency;
    • 32.2 Conditions needed for productive efficiency;
    • 32.3 Conditions needed for allocative efficiency;
    • 32.4 Pareto optimality;
    • 32.5 Dynamic efficiency;
    • 32.6 Market failure.

 Glossary

Highlight any new terminology on your glossary.

Activities in the Book

  • It is important that you complete Activities 32.1, 32.2 and 32.3 in the textbook.
  • Suggested answers can be found in the digital textbook and in General Resources.

Task

Think Like an Economist

  • Read and complete the ‘Think like an Economist’ task on page 323 of the textbook. This task asks you to consider and assess the likely social and economic impacts of fewer people flying.
  • Suggested answers can be found in the digital textbook and in General Resources.

Consolidate

  • Please now have a go at the exam-style questions on pages 324 to 325 of the textbook.
  • Suggested answers can be found in the digital textbook and in General Resources.

Reflect

  • Draw up a table like the one on page 325 of the textbook and complete the self-evaluation.
  • If there are any areas about which you are unsure, please go back over your notes, the textbook and the resources listed in this topic before moving on.