Question

What is productive efficiency? Allocative efficiency?

Short answer

Productive efficiency refers to the situation where the given resources are used to produce maximum possible output.

Allocative efficiency refers to the situation where the given reosurces are used to produce goods and services that provide maximum utility.

Step-by-step solution

Efficiency defintion

In economics, efficiency refers to the use of resources in such a way that no resource is wasted. Two kinds of efficiency is illustrated in a production possibility frontier.

Productive efficiency

Productive efficiency means given the available inputs and technologies it is no longer possible to produce more of one good without decreasing the quantity that is produced of another good. It means an entity is operating at maximum capacity.

All the points on PPF shows productive efficiency.

Allocative efficiency

Allocative efficiency is concerned with the optimal distribution of goods and services. It occurs when parties are able to use the accurate and readily available data reflected in the market to make decisions about how to utilize their resources. At its most basic, allocative efficiency means producers supply the quantity of each product that consumers demand. Only one of the productively efficient choices will be the allocatively efficient choice for society as a whole.