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Productive versus Allocative Efficiency
This note will break down the Productive and Allocative Efficiency in the most basic form possible.
Author:
Krish Beachoo
Edu Level: Unit1
Date: May 19, 2024
⏱️Read Time: 1 min
Firstly, let's lay out the "text-book" definition. It is advised that you use these definitions in your examination.
Productive Efficiency
- This is the largest quantity of goods and services produced from a given quantity of inputs.
Allocative Efficiency
- This is a state where resources are allocated to produce the most appropriate combination of goods and services.
Let's take the simple scenario of a car manufacturer, specifically Porsche.
At the end of the day, Porsche makes many different types of vehicles.
If we narrow down to Productive Efficiency, this is where Porsche would be making all their vehicles in the best way possible utilising all their resources (time and materials).
Compared to Allocative Efficiency, this is where Porsche focuses on utilising its resources appropriately to give consumers what they want. This is usually based on the consumer satisfaction. For example: If many customers want The 911 GT3, for Porsche to be allocatively efficient, they should focus their resources to producing this model.