A Level Economics AQA Practice Exam

What signifies productive efficiency?

1. Producing goods at the lowest possible cost

2. Achieving maximum consumer satisfaction

3. Maintaining a balanced budget in production

4. Creating a profit margin in every good produced

The correct answer is: Producing goods at the lowest possible cost

Productive efficiency is achieved when an economy or firm produces goods and services at the lowest possible cost. This means that resources are allocated in such a way that maximizes output without wasting any inputs. When productive efficiency is reached, the production process operates on the production possibility frontier, which represents the maximum potential output of an economy given its resources and technology. In this state, outputs cannot be increased without increasing inputs or decreasing the production of another good. Therefore, achieving productive efficiency signifies that no additional value can be obtained by reallocating resources among production processes—each good produced utilizes the least amount of resources necessary. Other options do not accurately define productive efficiency. Maximum consumer satisfaction relates more closely to allocative efficiency, where resources are distributed according to consumer preferences. Maintaining a balanced budget in production pertains to financial management rather than the efficiency of resource use in production. Creating a profit margin is a financial goal that does not specifically address the efficiency of production processes.