Question

Illustrate the contrasting approaches to productive and allocative efficiencies in the context using examples a command and a capitalistic economy?  

Answer 1

Productive efficiency is works on the tenets of production at the lowest cost possible while alloctive effiency posits that all produced goods should reach the the final consumer at the lowest cost possible.

Explanation:

The two approaches to usage of economic resources are important in supply chain management as allocative seeks to have the consumer needs at hand while productive efficiency promotes the concerns of the producers.It arguably correct that productive efficiency works best in monopoly market where the prices are higher than the marginal cost hence economic profit while applicative efficiency works best in perfect competition in which marginal cost and price are equal hence zero economic profit.

Allocative efficiency works well in capitalist economies where there is liberalism in free market allowing producers to produce in massively without balancing the needs of the economy, this leads to specialization in production.

On the other hand command economy allows the government to intervene in the production process through setting of quota systems and ensure every sector of economy is represented to cater to the needs of the general public at the lowest cost possible.