Economic and social production efficiency

. Economic efficiency In economics, the term economic efficiency refers to the use of resources so as to maximize the production of goods and services.[1] An economic system is said to be more efficient than another (in relative terms) if it can provide more goods and services for society without using more resources. In absolute terms, a situation can be called economically efficient if/No one can be made.better off without making someone else worse off (commonly referred to as Pareto efficiency).No additional output can be obtained without increasing the amount of inputs.Production proceeds at the lowest possible per-unit cost. These definitions of efficiency are not exactly equivalent, but they are all encompassed by the idea that a system is efficient if nothing more can be achieved given the resources available...

Theory There are two main strains in economic thought on economic efficiency, which respectively emphasize the distortions created by governments (and reduced by decreasing government involvement) and the distortions created by markets (and reduced by increasing government involvement). These are at times competing, at times complementary – either debating the overall level of government involvement, or the effects of specific government involvement. Broadly speaking, this dialog is referred to as Economic liberalism or neoliberalism, though these terms are also used more narrowly to refer to particular views, especially advocating laissez faire. Further, there are differences in views on microeconomic versus macroeconomic efficiency, some advocating a greater role for government in one sphere or the other.

Allocative and Productive Efficiency A market can be said to have Allocative efficiency if the price of a product that the market is supplying is equal to the value consumers place on it, represented by marginal cost. When drawing diagrams for firms, allocative efficiency is satisfied if the equilibrium is at the point where marginal cost is equal to average revenue. This is the case for the long run equilibrium of perfect competition. Productive efficiency is when units of goods are being supplied at the lowest possible average total cost. When drawing diagrams for firms, this condition is satisfied if the equilibrium is at the minimum point of the ATC curve. This is again the case for the long run equilibrium of perfect competition.

Mainstream views The mainstream view is that market economies are generally believed to be more efficient than other known alternatives[2] and that government involvement is necessary at the macroeconomic level (via fiscal policy and monetary policy) to counteract the economic cycle – following Keynesian economics. At the microeconomic level there is debate about how to maximize efficiency, with some advocating laissez faire, to remove government distortions, while others advocate regulation, to reduce market failures and imperfections, particularly via internalizing externalities.The first fundamental welfare theorem provides some basis for the belief in efficiency of market economies, as it states that any perfectly competitive market equilibrium is Pareto efficient. Strictly speaking, however, this result is only valid in the absence of market imperfections, which are significant in real markets. Furthermore, Pareto efficiency is a minimal notion of optimality and does not necessarily result in a socially desirable distribution of resources, as it makes no statement about equality or the overall well-being of a society.[

Social Production: Feasibility Conditions and Organizational Form All technological factors necessary for production activities are under the control of individual users, yet people still must operate within the profit motive (we have to work to put food on the table). However, both human creativity and computational power exist in large quantities of excess. This excess is now able to be harbored through social networked technologies (99, 100). Two characteristics that underly the success of social networked technologies:

- Modularity: The extent to which a project can be broken down into smaller components, or modules, before it is assembled into a whole.

- Granularity: The size of the modules in terms of time effort needed for production- fine grained modules can be created quickly and simply, while large-grained modules require more time and effort.

A successful peer-production project must have a significant portion of its modules be fine-grained (101). Not all chunks, however, must be fine-grained, as they can be structured so that different individuals can contribute diverse levels of effort based on interest, availability, and abilities. In fact, the entire World Wide Web is organized in this way (102). Yet the Web's modules (website) require far less cooperation between parts than peer-production processes. Peer-Production cooperation is usually maintained by a combination of (104):

- Technical architecture

- Social norms

- Legal rules

Transaction Costs and Efficiency Commons-based peer production and social production are sometimes more efficient than market-based production (106) 2 scarce resources in information production (107):

- Human creativity, time and attention

- Computation and communications resources

Human Creativity, Time and Attention In a firm or organization, individual effort is difficult to price, and therefore market mechanisms become more costly to maintain efficiently (110). In a commons-based peer production model on the other hand, the larger available talent pool is better structured to identify the best person to produce a specific component of a project (111).

Computation and Communications Resources The lack of specification in human-power also translates to physical resources (112). Computers, wireless transcievers, and Internet connections are “shareable goods.” Users in a wealthy society purchase computational power in discrete, “lumpy,” units. Therefore, they buy more computational power at a relatively low price than what they need on a daily basis, leaving the extra power unused. The ability to share this excess capacity makes personal computing “shareable.” (114)

Economic Efficiency of Socialist Production one of the most important indicators of socialist economic development; the ratio of the useful result (effect) to the expenditures —determined for the national economy, branches of the economy, and individual factories—required to achieve that result. Several indexes of the economic efficiency of socialist production may be determined by comparing types of expenditures for the production of output or for the provision of material services with the useful effect. Such indexes are helpful in the quantitative and qualitative analysis of the economy as a whole or of its various subdivisions and are used in the planning and day-to–day management of economic activity. Indexes of economic efficiency are conventionally divided into three groups. The first comprises general indexes of economic efficiency, the most important of which is the growth of the social productivity of labor. This growth may be expressed quantitatively in the growth of output and in absolute savings of living and embodied labor, measured in terms of value and in physical terms. The results of production are most completely represented in the final social product and national income (net output) (seeTOTAL SOCIAL PRODUCT). Overall profitability is also considered a general index. The second group of indexes consists of the basic indexes of economic efficiency in the use of such production resources as living labor, fixed production assets, expenditures of materials, and capital investments. These indexes, which are computed on the basis of national income (net output), include the productivity of living labor (labor input), capital-output ratio (capital productivity), consumption of materials (materials-output ratio), and return on capital investments (capital intensity). The third group of indexes comprises technological-economic indexes of efficiency in the use of resources. These indexes are used in the analysis and planning of several aspects of the production process and in the calculation of factors of production growth at enterprises, branches of industry, and in agriculture, construction, trade, and transportation. The third group of indexes includes individual output; coefficients of the use of the means of labor and of the capacity of machinery units; expenditures of raw materials, supplies, fuel, and energy per unit of output; and payoff period, discounted expenditures, and capital investments per unit of output. Depending on the method of calculation used, indexes of the productivity of labor play various roles in the system of indexes of the economic efficiency of socialist production. Growth in the productivity of living labor, when measured as the ratio of the final results of production and the total expenditures of living and embodied labor, is a general index of economic efficiency (and therefore belongs in the first group), since it most completely reflects the results of the interactions between material (physical) and subjective (social) elements of the productive forces. Individual output, or the productivity of living labor, measured as the ratio of the results of production and expenditures only of living labor, is an important instrument for analyzing and planning economic efficiency in the use of labor resources (and therefore belongs in the second group). For this reason, both indexes are used simultaneously in national economic planning. None of the indexes listed above, considered separately, sufficiently takes into account expenditures, effect, or both taken together. As a rule, the rates and directions of change reflected by these indexes fail to coincide, and it is therefore virtually impossible to use them to make clear-cut economic decisions. A steady growth in national income and the productivity of social labor, for example, suggests an increase in economic efficiency of production, but a drop in capital-output ratio and profitability indicates that production is becoming less efficient. The application of such generally accepted indexes of relative economic efficiency, as minimum discounted expenditures is limited by the nature of the indexes being compared.

The level of social productivity of labor (A) coincides with the national economic efficiency of production (£) and is, at the same time, a general index of efficiency: E = A = R/(Ll + Le)where R represents the final results of production (output volume expressed in physical terms) and Ll, + Le represents expenditures of aggregate (living and embodied) labor, using a single unit of measure. The expression of the final results in terms of, for example, the total gross social product, the final social product, or national income (net output) constitutes a modification of the index. Of practical interest is the general index of efficiency in the use of resources, calculated as the ratio of national income in fixed prices to production assets and to expenditures not just of labor consumed but of all labor involved in production. Many economists regard a growth in profits, an increase in net profit or profitability, or a rise in the level of the people’s well-being as a criterion of efficiency.

Date: 2015-01-29; view: 911