ECO320Y5 Study Guide - Midterm Guide: Productive Efficiency, Allocative Efficiency, Marginal Cost
Document Summary
A single judge is more likely to arrive at optimal decisions. These factors lower both administrative costs and transaction costs. Even though individual preferences are complete, transitive, and reflexive, group preferences determined through majority voting may not be. Productive efficiency means that, given the available inputs, neither is it possible to produce the same amount of output at a lower cost nor it is possible to produce more using the same amount of inputs. Allocative efficiency means that resources cannot be reallocated to make one individual better off without making another individual worse off: a non-voluntary transaction never increases utility. Goods that are acquired through voluntary exchange guarantee that goods move to those who value them the most and, in doing so, makes both parties better off. Goods that exchange hands without the consent of both parties - as by theft - do not carry this same guarantee.
