Information about X Efficiency
In economics, x-efficiency is the effectiveness with which a given set of inputs are used to produce outputs. If a firm is producing the maximum output it can, given the resources it employs, such as men and machinery, and the best technology available, it is said to be x-efficient. x-inefficiency occurs when x-efficiency is not achieved. The concept of x-efficiency was introduced by Harvey Leibenstein in his paper Allocative efficiency v. "x-efficiency" in American Economic Review 1966.
In a market with perfect competition, there will in general be no x-inefficiency because if any firm is less efficient than the others it will not make sufficient profits to stay in business in the long term. However, with other market forms such as monopoly it may be possible for x-inefficiency to persist, because the lack of competition makes it possible to use inefficient production techniques and still stay in business.
X-inefficiency is not the only type of inefficiency in economics. X inefficiency only looks at the outputs that are produced with given inputs. It doesn't take account of whether the inputs are the best ones to be using, or whether the outputs are the best ones to be producing, which is referred to as allocative efficiency. For example, a firm that employs brain surgeons to dig ditches might still be x-efficient, even though reallocating the brain surgeons to curing the sick would be more efficient for society overall.
In a market with perfect competition, there will in general be no x-inefficiency because if any firm is less efficient than the others it will not make sufficient profits to stay in business in the long term. However, with other market forms such as monopoly it may be possible for x-inefficiency to persist, because the lack of competition makes it possible to use inefficient production techniques and still stay in business.
X-inefficiency is not the only type of inefficiency in economics. X inefficiency only looks at the outputs that are produced with given inputs. It doesn't take account of whether the inputs are the best ones to be using, or whether the outputs are the best ones to be producing, which is referred to as allocative efficiency. For example, a firm that employs brain surgeons to dig ditches might still be x-efficient, even though reallocating the brain surgeons to curing the sick would be more efficient for society overall.
See also
Economics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Greek for oikos (house) and nomos (custom or law), hence "rules of the house(hold).
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X-inefficiency is the difference between efficient behavior of firms assumed or implied by economic theory and their observed behavior in practice.
Economic theory assumes that the management of firms act to maximize owners' wealth by minimizing risk and maximizing economic
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Economic theory assumes that the management of firms act to maximize owners' wealth by minimizing risk and maximizing economic
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Harvey Leibenstein (1922 – 1994) was an American economist. He introduced the term X-efficiency.
The X-efficiency describes the costs of monopolies when they lack competitors.
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The X-efficiency describes the costs of monopolies when they lack competitors.
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Perfect competition is an economic model that describes a hypothetical market form in which no producer or consumer has the market power to influence prices. According to the standard economical definition of efficiency (Pareto efficiency), perfect competition would lead to a
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In economics, market structure (also known as market form) describes the state of a market with respect to competition.
The major market forms are:
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The major market forms are:
- Perfect competition, in which the market consists of a very large number of firms producing a homogeneous
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monopoly (from Greek monos, one + polein, to sell) is defined as a persistent market situation where there is only one provider of a product or service, in other words a firm that has no competitors in its industry.
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Allocative efficiency is the market condition whereby resources are allocated in a way that maximizes the net benefit attained through their use. Allocative efficiency refers to a situation in which the limited resources of a country are allocated in accordance with the wishes of
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Pareto efficiency, or Pareto optimality, is an important notion in economics with broad applications in game theory, engineering and the social sciences. The term is named after Vilfredo Pareto, an Italian economist who used the concept in his studies of economic efficiency
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In microeconomics, production is the act of making things, in particular the act of making products that will be traded or sold commercially. Production decisions concentrate on what goods to produce, how to produce them, the costs
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The term inefficiency has several meanings depending on the context in which its used:
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- Allocative inefficiency - Allocative efficiency theory says that the distribution of resources between alternatives does not fit with consumer taste (perceptions of costs and
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