Author Topic: Allocative vs Technical efficiency?  (Read 3150 times)  Share 

0 Members and 1 Guest are viewing this topic.

Offline Phenotype

  • Victorian
  • Contributor
  • **
  • Posts: 55
  • Respect: 0
Allocative vs Technical efficiency?
« on: February 27, 2011, 09:33:17 PM »
0
Can someone explain the difference between the two?
I know that Allocative is the most efficient allocation of resources to satisfy the needs and wants of society.
Technical = where increasing output is only possible by increasing input. Isn't that also satisfying the needs and wants of society?

Is there like a social/economic difference where technical maximises profits without caring for social needs or something?
2010: Accounting 40 (blech) VCE VET Business (48) Premier's Award woohoo!
2011: English Methods Specialist Economics Revolutions

Offline Water

  • Victorian
  • Part of the furniture
  • *****
  • Posts: 1145
  • Gender: Male
  • Respect: +114
Re: Allocative vs Technical efficiency?
« Reply #1 on: February 27, 2011, 10:25:03 PM »
0
Hi Phenotype.

There is a very slippery slope between the definitions of Allocative and Technical efficiency, and I do believe you've got the jist of the definitions. But I will reillerate, perhaps it can make it clearer.

Allocative Efficiency is a measure of how efficient resources are allocated in such a way that maximizes the satisfactory level of the needs and wants of society. Generally, a country is considered to be allocative efficient is when, they hit the boundaries of their PDF curve.



Technical Efficiency is what proceeds after Allocative efficiency. This is when, your allocative efficiency has been maximized in such a way that your current resources output can no longer be pushed to the boundaries or extend to the outwards of PDF curve (If it was inwards, it'd be within the PDF Curve, therefore allocative efficiency would not be maximized).

Thus the only way, to push your PDF Curve outwards is through technical efficiency. This can be either through more input of resources or investment in better capital.


And then the cycle starts all over again.



PS: Fixed some definitions
« Last Edit: February 28, 2011, 07:46:47 PM by Water »
About Philosophy

When I see a youth thus engaged,—the study appears to me to be in character, and becoming a man of liberal education, and him who neglects philosophy I regard as an inferior man, who will never aspire to anything great or noble. But if I see him continuing the study in later life, and not leaving off, I should like to beat him - Callicle

Offline Phenotype

  • Victorian
  • Contributor
  • **
  • Posts: 55
  • Respect: 0
Re: Allocative vs Technical efficiency?
« Reply #2 on: February 28, 2011, 06:08:56 PM »
0
WAIT WAIT WAIT.
So, allocative efficiency is just anywhere along the PDF curve?
and technical efficiency is where the value of goods and services on the boundary of the PDF curve is at the greatest?

or is it the other way around <--->
2010: Accounting 40 (blech) VCE VET Business (48) Premier's Award woohoo!
2011: English Methods Specialist Economics Revolutions

Offline Water

  • Victorian
  • Part of the furniture
  • *****
  • Posts: 1145
  • Gender: Male
  • Respect: +114
Re: Allocative vs Technical efficiency?
« Reply #3 on: February 28, 2011, 06:18:17 PM »
0
Allocative Efficiency is , yes, anywhere in the PDF Curve, could be on the the boundaries, or be within the boundary. . HOWEVER, IF your ALLOCATIVE EFFICIENT, that means YOUR ON THE BOUNDARY OF THE PDF CURVE, thereby your output is maximized.



Technical Efficiency, is when YOU GO BEYOND THE BOUNDARY CURVE.





PS: Its just all about interpreting the definitions, word by word.  :2funny:
« Last Edit: February 28, 2011, 06:31:55 PM by Water »
About Philosophy

When I see a youth thus engaged,—the study appears to me to be in character, and becoming a man of liberal education, and him who neglects philosophy I regard as an inferior man, who will never aspire to anything great or noble. But if I see him continuing the study in later life, and not leaving off, I should like to beat him - Callicle

Offline chrisjb

  • Victorian
  • Part of the furniture
  • *****
  • Posts: 1050
  • Gender: Male
  • ROAR
  • Respect: +64
Re: Allocative vs Technical efficiency?
« Reply #4 on: February 28, 2011, 06:35:09 PM »
0
WAIT WAIT WAIT.
So, allocative efficiency is just anywhere along the PDF curve?
and technical efficiency is where the value of goods and services on the boundary of the PDF curve is at the greatest?

or is it the other way around <--->
I think it's the other way arround...

Allocative efficiency is producing the right goods in the right quantities, technical efficiency is about how the goods are produced (maximising productivity and minimising wasted resources).

absolute allocative efficency occurs only at the point on the ppf where the maximum levels of production are being achieved (often this is labled as "the point of 'greatest efficiency'"). Technical efficiency is achieved when the Production possibilty frontier is actualy reached by industry (any where allong that line).

As an example:

Production of wool / wheat for an entire country [excuse the fact that these figgures would never be accurate in real life]
10 / 0
5 / 10
0 / 12

Allocative efficiency is when industry produces 5 tonnes of wool and 10 tonnes of wheat. However, technical efficiency is achieved when industry produces 12 tonnes of wheat and when industry produces 10 tonnes of wool and when industry produces 5 tonnes of wool and 10 tonnes of wheat.

To put it another way, i can be technicaly efficient at producing charcoal from wood if I burn it in a manner that maximises the amount of charcoal I get from the wood. So I am absolutely technicaly efficient at producing charcoal. But in terms of Allocative efficiency I am very ineficient. Society doesn't want charcoal and turning the wood into tables (which society does want) would be the more efficient option in terms of allocative efficiency.
2011: 96.35
2012: http://www.thegapyear2012.com/
2013: Arts (Global) Monash
2016: Juris Doctor (somewhere)

Offline Water

  • Victorian
  • Part of the furniture
  • *****
  • Posts: 1145
  • Gender: Male
  • Respect: +114
Re: Allocative vs Technical efficiency?
« Reply #5 on: February 28, 2011, 06:38:08 PM »
0
Lol Are, you sure?

I"m going to use definition straight from the book

Technical Efficiency:

This occurs when it is not possible to increase output without increasing inputs


Example: The Economy is at the edge of the production possibility frontier.



PS: Yes Yes, Chrisjb is right. Haha,  :2funny:


You Can Be Technologically Efficient at something

And You Can Be Allocative Efficient at something


Stupid Textbook, so vague about it. Googled it ^^ ...Though the book definition is also right. As allocative efficiency is maximized. The only way to produce more of that certain output is through technical efficiency.
« Last Edit: February 28, 2011, 06:48:07 PM by Water »
About Philosophy

When I see a youth thus engaged,—the study appears to me to be in character, and becoming a man of liberal education, and him who neglects philosophy I regard as an inferior man, who will never aspire to anything great or noble. But if I see him continuing the study in later life, and not leaving off, I should like to beat him - Callicle

Offline Phenotype

  • Victorian
  • Contributor
  • **
  • Posts: 55
  • Respect: 0
Re: Allocative vs Technical efficiency?
« Reply #6 on: February 28, 2011, 06:47:43 PM »
0
i am unbelievably confused
2010: Accounting 40 (blech) VCE VET Business (48) Premier's Award woohoo!
2011: English Methods Specialist Economics Revolutions

Offline schmalex

  • Victorian
  • Guru
  • ****
  • Posts: 620
  • Respect: +3
Re: Allocative vs Technical efficiency?
« Reply #7 on: February 28, 2011, 09:15:25 PM »
0
A really good example I found on Wikipedia of all places:

If you had brain surgeons digging ditches, and they were all digging ditches to the best of their ability, and they could not possibly dig any more ditches than they are ditching without extra resources, then you have technical efficiency. This is because you are getting the maximum output from a given level of input (maximum ditches from a given level of brain surgeons).

However, brain surgeons digging ditches isn't what's best for society. If they stopped digging ditches and performed brain surgery, society would have fewer ditches, but more brain surgery. Assuming society places a higher value on brain surgery, than ditches, the total satisfaction society gains from its allocation of resources (that is, the decision to have brain surgeons doing brain surgery, rather than digging ditches) has increased, and there is greater satisfaction in society. Does that help to shed a little more light on it.

Basically

technical\productive efficiency =maximum output from given resources
allocative efficiency= best possible use of given resources in order to benefit society.
2009- National Politics (43) Methods (38)
2010- Economics (50) English (44) Literature (38) Introductory Microeconomcis (86) Introductory Macroeconomics (75)
ATAR:98.95

Offering Economics tutoring
http://vce.atarnotes.com/forum/index.php/topic,35848.0.html

Offline chrisjb

  • Victorian
  • Part of the furniture
  • *****
  • Posts: 1050
  • Gender: Male
  • ROAR
  • Respect: +64
Re: Allocative vs Technical efficiency?
« Reply #8 on: February 28, 2011, 09:35:42 PM »
0
A really good example I found on Wikipedia of all places:

If you had brain surgeons digging ditches, and they were all digging ditches to the best of their ability, and they could not possibly dig any more ditches than they are ditching without extra resources, then you have technical efficiency. This is because you are getting the maximum output from a given level of input (maximum ditches from a given level of brain surgeons).

However, brain surgeons digging ditches isn't what's best for society. If they stopped digging ditches and performed brain surgery, society would have fewer ditches, but more brain surgery. Assuming society places a higher value on brain surgery, than ditches, the total satisfaction society gains from its allocation of resources (that is, the decision to have brain surgeons doing brain surgery, rather than digging ditches) has increased, and there is greater satisfaction in society. Does that help to shed a little more light on it.

Basically

technical\productive efficiency =maximum output from given resources
allocative efficiency= best possible use of given resources in order to benefit society.
much clearer than burning wood to make charcoal ;)
2011: 96.35
2012: http://www.thegapyear2012.com/
2013: Arts (Global) Monash
2016: Juris Doctor (somewhere)

Offline schmalex

  • Victorian
  • Guru
  • ****
  • Posts: 620
  • Respect: +3
Re: Allocative vs Technical efficiency?
« Reply #9 on: February 28, 2011, 09:52:55 PM »
0
A really good example I found on Wikipedia of all places:

If you had brain surgeons digging ditches, and they were all digging ditches to the best of their ability, and they could not possibly dig any more ditches than they are ditching without extra resources, then you have technical efficiency. This is because you are getting the maximum output from a given level of input (maximum ditches from a given level of brain surgeons).

However, brain surgeons digging ditches isn't what's best for society. If they stopped digging ditches and performed brain surgery, society would have fewer ditches, but more brain surgery. Assuming society places a higher value on brain surgery, than ditches, the total satisfaction society gains from its allocation of resources (that is, the decision to have brain surgeons doing brain surgery, rather than digging ditches) has increased, and there is greater satisfaction in society. Does that help to shed a little more light on it.

Basically

technical\productive efficiency =maximum output from given resources
allocative efficiency= best possible use of given resources in order to benefit society.
much clearer than burning wood to make charcoal ;)

Say what you like about Wikipedia, it's pretty good at explanations sometimes.
2009- National Politics (43) Methods (38)
2010- Economics (50) English (44) Literature (38) Introductory Microeconomcis (86) Introductory Macroeconomics (75)
ATAR:98.95

Offering Economics tutoring
http://vce.atarnotes.com/forum/index.php/topic,35848.0.html

Offline chrisjb

  • Victorian
  • Part of the furniture
  • *****
  • Posts: 1050
  • Gender: Male
  • ROAR
  • Respect: +64
Re: Allocative vs Technical efficiency?
« Reply #10 on: February 28, 2011, 09:57:15 PM »
0
A really good example I found on Wikipedia of all places:

If you had brain surgeons digging ditches, and they were all digging ditches to the best of their ability, and they could not possibly dig any more ditches than they are ditching without extra resources, then you have technical efficiency. This is because you are getting the maximum output from a given level of input (maximum ditches from a given level of brain surgeons).

However, brain surgeons digging ditches isn't what's best for society. If they stopped digging ditches and performed brain surgery, society would have fewer ditches, but more brain surgery. Assuming society places a higher value on brain surgery, than ditches, the total satisfaction society gains from its allocation of resources (that is, the decision to have brain surgeons doing brain surgery, rather than digging ditches) has increased, and there is greater satisfaction in society. Does that help to shed a little more light on it.

Basically

technical\productive efficiency =maximum output from given resources
allocative efficiency= best possible use of given resources in order to benefit society.
much clearer than burning wood to make charcoal ;)

Say what you like about Wikipedia, it's pretty good at explanations sometimes.
hells yeah, my international studies teacher recomends wikipedia for learning about all our concepts (and the talk pages are good to see the nuances of definitions and little micro debates).
2011: 96.35
2012: http://www.thegapyear2012.com/
2013: Arts (Global) Monash
2016: Juris Doctor (somewhere)

Offline schmalex

  • Victorian
  • Guru
  • ****
  • Posts: 620
  • Respect: +3
Re: Allocative vs Technical efficiency?
« Reply #11 on: February 28, 2011, 09:58:16 PM »
0
Yeah, I used Wikipedia extensively in National Politics.
2009- National Politics (43) Methods (38)
2010- Economics (50) English (44) Literature (38) Introductory Microeconomcis (86) Introductory Macroeconomics (75)
ATAR:98.95

Offering Economics tutoring
http://vce.atarnotes.com/forum/index.php/topic,35848.0.html