Starter – recap test Define opportunity cost, using an example (3) Define the following terms (3) Profit Maximisation Sales Maximisation Satisficing Explain what is meant by social objectives, using an example to help (2) Define stakeholder, using examples to help (2)

Lesson Objectives All students will understand the difference between allocative and productive efficiency Some students will be able to relate this to different contexts Few students will understand the importance of allocative and productive efficiency on the economy

Productive efficiency In very competitive markets firms need to: minimise costs Accept market prices Keep up with developments Operating at minimum costs is productive efficiency and resources are not wasted

Improving productive efficiency Technology Human Capital improvement Quality of managemnt

Allocative efficiency Allocative efficiency occurs when resources are allocated between competing uses in a way that matches the requirements of consumers to the greatest possible extent

Figure 3 pg 25 The logic of allocative efficiency

The significance of the margin Millions of economic decisions are made every day, from choosing which chocolate bar to buy, to whether or not to build a new school. Each of these decision come with a trade off because of the opportunity cost involved The choice is made based on the value of that choice being greater than the alternative foregone, even if that choice is only slightly marginal As long as the marginal benefit is greater than the marginal cost, the choice makes economic sense.

Market orientation If firms are focussed on what the market wants it is market orientated, (rather than product orientation) If firms are market orientated, allocative efficiency gains should be gained Firms that provide what customers want will become stronger, those that don’t will not survive, allocative efficiency will result

How markets interact Look at exam style Q pg 28 Work in pairs to create a plan for this answer in your note book

HWK WE have now completed Theme 4 – Section 1 Revise for a 20 mark essay question next lesson from any of the topics covered so far