There are a number of types of efficiency these include;
Dynamic efficiency is concerned with how resources are allocated over a period of time, for example there would be greater efficiency if a firm distributed less profit to it’s shareholders but instead invested more of the money into.
Allocative efficiency occurs when resources are used to produce the goods and services that consumer wish to buy. For example a consumer wants to buy a pair of shoes, so the shoes must be available to purchase in the shops.
Productive efficiency exists when a production is achieved at the lowest cost.
If a firm where to achieve perfect competition is likely to lead to efficiency for a number of reasons, competitive pressures will ensure that the firms produce at the lowest cost, so they are running at productive efficiency. If a firm fails to be productively efficient then they will be driven out of the industry, this is due to the fact that they cannot compete with the other firms on price.
Also firms will also be allocatively efficient, this is because firms need to have their products in the shops so they can compete with the other companies on the price.
When a firm is running in an industry of perfect competition then it’s short run output will look like the following;
Whereas in the long run it will look like;
In conclusion a firm in perfect competition will have to become more efficient or it will be driven out of business by its competitors.
“Assess the extent to which developments in Information Technology, such as the Internet are making markets more competitive”
The term perfectly competitive refers to a number of small firms all selling the same product and therefore just competing on the price of the product.
Technology can help make these markets more competitive by using different mediums to reach a larger target audience. This is mainly to do with the marketing of the products; it can be performed in a number of ways, on the television, on the radio, on the Internet as well as via traditional methods.
The Internet could be described as a worldwide advert, as a large majority of the web sites are either marketing or selling different products and services.
Out of the methods it is undoubtedly the Internet that has given markets the chance to become more competitive, not only does it offer a relatively inexpensive medium to advertise upon, but also it is helping make markets global.
There are a number of reasons for this, these include; that there are few barriers to entry, this is due to the fact that there are little set-up costs for an online company, as they need no premises and no staff. So this means virtually anyone can have a website and sell products via the Internet with no real capital. Also as no premises are required then it allows people from anywhere to create an online business.
The Internet could be said to be making markets global, this is because people can buy goods and services from anywhere in the world. A good example of a global Internet site is Amazon.com; it offers consumers the largest selection of products in the world, people can have goods delivered anywhere in the world.
But how is the Internet making markets more competitive? Not only does it allow firms to advertise to a much wider spectrum of people but also it allows these people to actually buy from them, as these people do not have to go to a store and buy the products then the fixed costs of the firms are lower so they can offer the products cheaper.
The Internet is developing all the time so the nature of the competition is also going to be changing; currently it is on the price and the marketing of the products. But in the future who knows how the firms are going to compete other than on the price.
However it is not just the Internet that is making markets more competitive, Electronic Point of Sale technology allows firms to monitor how the products are selling.
In conclusion I think that the Internet has revolutionised how we buy products now, it offers the products cheaper than in normal shops and saves you the hassle of going to the shop. I feel that can only get better for buying online.
However there are other issues surrounding the buying of goods online, mainly the security of your credit details, nonetheless these are slowly being fixed and the internet should be a safe place to shop in the future.
