When is a society economically efficient

Farrell, M. The measurement of productive efficiency. Holmstrom, B. The theory of the firm. Willing Eds. Amsterdam: North Holland. Kumbhakar, S. Efficiency measurement with multiple outputs and multiple inputs.

Leibenstein, H. Allocative efficiency vs. American Economic Review, 56 , — Olson, J. A Monte Carlo study of stochastic frontier production functions. Journal of Econometrics, 13 , 67— Schmalensee, R. Inter-industry studies of structure and performance. Schmidt, P. Frontier production functions. Econometric Reviews, 4 2 , — Tirole, J. If production were inefficient, then it would be possible for some people to gain without imposing losses on others.

Consider output level slightly less than the efficient quantity shown above. And in a competitive industry, they will be. If this small quantity were initially produced and sold, existing firms in a competitive industry would enjoy economic profit. This would cause the industry to grow until the allocatively efficient quantity is reached. The adjustment process is just reversed if industry output exceeds the efficient level of output.

Minimum wage and price floors. How price controls reallocate surplus. Price ceilings and price floors. Practice: Price and quantity controls. Practice: The effect of government interventions on surplus.

Taxation and dead weight loss. Example breaking down tax incidence.