A Level Economics AQA Practice Exam

Why is productive efficiency important for an economy?

1. It ensures that consumers always get what they want

2. It minimizes the costs of production and maximizes output

3. It guarantees equality in resource allocation

4. It helps in achieving long-term growth without risks

The correct answer is: It minimizes the costs of production and maximizes output

Productive efficiency is a crucial aspect of an economy because it occurs when resources are allocated in a way that minimizes the costs of production while maximizing output. When an economy operates at productive efficiency, it means that it is producing goods and services at the lowest possible cost. This efficient use of resources not only leads to lower prices for consumers but also allows firms to increase their output levels, which can enhance overall economic growth. By minimizing wasted resources—whether labor, raw materials, or capital—an economy can produce more with the same amount of inputs. This efficiency is vital, as it enables countries to better satisfy their population's needs and supports competitiveness in the global market. Maximized output and minimized costs align closely with the fundamental goals of economic agents, stimulating investment and encouraging innovation, which are key drivers of long-term economic development.