Dynamic efficiency
What Dynamic efficiency means in Economics A-Level, as defined for AQA.
Definitions of Dynamic efficiency
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Reference: AQA
Arises through product innovation connected to the reinvestment of supernormal profits, and is driven by creative destruction as a vital driver of long-term economic growth.
Relates to how resources are allocated over time, driven by investment in research and development and innovation, leading to new products and improved production processes.
A long-run outcome where firms reinvest profits into research and development to survive, resulting in better quality products and lower long-run average costs.
The improvement of productive efficiency over time through innovation and investment, shifting the long-run average cost curve downwards.
Not achieved in perfect competition because firms lack the long-run supernormal profits necessary to fund research and development.
Achieved through investment and research expenditure, which lowers long-run average costs or creates innovative products.
Topics that use Dynamic efficiency
- Market structure, static efficiency, dynamic efficiency (AQA A-Level)
- Oligopoly (AQA A-Level)
- Perfect competition (AQA A-Level)
- Technological change (AQA A-Level)
- The dynamics of competition and competitive market processes (AQA A-Level)
Related terms
- Productive efficiency
- Allocative efficiency
- Barriers to entry
- Collusion
- Innovation
- Market structure
- Monopoly power
- Non-price competition
Using Dynamic efficiency in the exam
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