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Discuss whether economic efficiency as described in text books is likely to be able to be achieved in practice
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2. Discuss whether economic efficiency as described in text books is likely to be able to be achieved in practice. A. Economic efficiency refers to the allocation of resources to maximize consumer satisfaction at maximum opportunity cost. Efficiency can be classed into two sorts: allocative efficiency and productive efficiency of which the latter is concerned with production taking place at minimum average cost. Productive efficiency theoretically exists absolutely in a perfectly competitive market. This is the market structure where forces of demand and supply determine price so firms are price takers and competitive pressures make these short-run profit maximizing firms produce at lowest average cost of production. However in reality, a market structure of perfect competition does not exist because the model of perfect competition is based on the assumptions that factors of production are perfectly mobile, there is perfect information, there are no barriers to entry and exit and that externalities...
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