Explain to your boss how technological advance increases productive efficiency and allocative efficiency.

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Expert Solution

Technological advances increase both allocative efficiency and productive efficiency.

In simple words, allocative efficiency refers to the economic situation in which the goods and services are produced according to the preferences of consumers. Productive efficiency is maximized when goods and services are produced in a way that the marginal benefit of the last unit of each good provides a marginal benefit equal to the marginal cost of production. Technological advances help in product innovation which helps in producing goods and services according to the preference of the consumers.

Productive efficiency refers to the situation in which an economy cannot produce more of one good without reducing the production of another good. Therefore, in productive efficiency, all resources are fully employed to their best use. Technology helps in process innovation, which increases productivity i.e. technology enables the production of more goods and services using a lower level of inputs. Technological innovation helps in reducing the average total cost.

Rahul Sunny answered 1 year ago

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