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Hey everyone.
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Today we'll be going through problem three from chapter two of the textbook, which deals with concepts of productive efficiency and allocative efficiency, and whether or not a nation could produce in a way that is both productively efficient and allocatively, or rather allocative efficiency, allocatively efficient, excuse me, but productively efficient.
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All right, so first we want to define both terms before, you know, we apply our definitions to the problem.
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So what is productive efficiency? while in chapter two of your reading, we know that it is basically stating that it is impossible to produce more of one good without decreasing the quantity of another.
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That's the definition of productive efficiency.
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And then with allocative efficiency, we're dealing with the particular combination of goods.
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And services.
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So this combination represents the most desirable combination by society.
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Now what this desirable combination is is at debate, but at the basic level, this means that producers apply what consumers demand, no more, no less.
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So it's kind of the idealistic or ideal scenario.
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All right.
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So those are the definitions of productive and allocative efficiency.
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And you can understand the difference between both...