What is productive efficiency Does it guarantee that markets

What is productive efficiency? Does it guarantee that markets are operating efficiently?

Solution

Production efficiency is defined as a point of production at which the economy can no longer produce additional amounts of a good without lowering the production level of another good . This happens when an economy is operating along its production possibility frontier . It is using all its resources efficiently .

An equilibrium may be productively efficient without being allocatively efficient . So it may result in a distribution of goods where social welfare is not maximized . Productive efficiency ensures that all goods are produced in the least cost way . Productive efficiency alone does not guarantee that markets are operating efficiently. Society must also produce the goods and services that society wants most. This requires that a competitive market achieves allocative efficiency . Hence it does not guarantee market efficiency .