Therefore, to be distributively efficient, society will need to ensure an equitable distribution of resources.
A monopoly could lead to distributive inefficiency. A monopoly is able to use its market power to set high prices and make super-normal profits. Thus a monopoly owner can gain a higher share of national output, but consumers face higher prices and a decline in consumer surplus.
Conflict Between Distributive Efficiency and Economic Efficiency
Ensuring an equitable distribution of resources may cause economic disincentives. For example, if people on high incomes see very high rates of marginal tax, they may stop working or work in another country. Therefore, society may see less output.
There is a trade-off between increasing equity and causing disincentives to work and take risks.
Generally, there is an assumption that a free market needs a degree of inequality to create some incentives for entrepreneurship etc.
Production possibility frontier and distributive efficiency
A move from A to B is still productively efficient but it can lead to a decline in distributive efficiency.
Theory of Distributive Efficiency
First mentioned by:
Lerner, Abba P. The Economics of Control. New York: Macmillan Co., 1944.
In welfare economics, distributive efficiency occurs when goods and services are received by those who have the greatest need for them. Abba Lerner first proposed the idea of distributive efficiency in his 1944 book The Economics of Control.
Distributive efficiency is when the consumer goods in an economy are distributed so that each unit is consumed by the individual who values that unit most highly compared to all other individuals.
Productive efficiency is the ability of a firm to produce goods or services at the lowest possible cost, given the level of output and the available technology. It means that a firm is using all its resources in the most efficient way possible, producing the maximum output with the minimum input.
Economic efficiency means maximum social benefit and low production costs. Furthermore, companies that eliminate waste when producing and distributing goods achieve economic efficiency.
Economic efficiency can be improved by reducing waste or inefficiency in the production process. This can be achieved in various ways, such as by adopting more efficient production technologies, reducing unnecessary inputs, improving management practices, or better utilizing existing resources.
In welfare economics, distributive efficiency occurs when goods and services are received by those who have the greatest need for them. Abba Lerner first proposed the idea of distributive efficiency in his 1944 book The Economics of Control.
A distributive economy promotes an equitable distribution of the money supply. In a capitalist economy, the money supply is distributed by private banks, which gives banks too much power. In a distributive economy, government-backed financial institutions take the role of private banks.
Economists usually distinguish between three types of efficiency: allocative efficiency; productive efficiency; and dynamic efficiency. The first two of these are static concepts being concerned with how much can be produced from a given stock of resources at a certain point in time.
DISTRIBUTION EFFICIENCY = rate of heat delivery rate of energy use by distribution equipment. So if a heating system provides 130,000 Btu/h at out- ...
Dynamic efficiency involves adapting and innovating to maintain efficiency in the face of changing market conditions, consumer preferences, and technology. Static efficiency leads to a stable and predictable output, while dynamic efficiency leads to continuous improvement and innovation.
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