Economics concepts and principles

Productive efficiency is an economic concept that is commonly described as an economy's ability to produce a good through the least available resources. Therefore, efficient production is an economic process that is realized when a good is produced using the lowest total cost of that good or product. On the other hand, productive efficiency also implies the economic stage in which an economy cannot create extra amounts of a product without lessening the level of production of another good. However, the likelihood of this economic level to occur depends on the economy's ability to function along its boundaries of production capability.

This concept is mainly used to examine whether an economy is producing a good in the best possible means without wastage of necessary resources. This implies that productive efficiency incorporates every aspect of the production ability boundaries, a process that is difficult to examine practically. However, this concept remains important to an economy because of the prevalence of limited resources and its ability to promote high production levels. Actually, maximum production level or productive efficiency is achieved when an economy creates a product without sacrificing the creation of another (Hubbard & O'Brien, 2009, p.60).

The difficulty attributed to production possibility frontier is that its curve shows the impossibility of producing a good without lessening the production of another. In most cases, the PPF curve demonstrates that product efficiency is relatively difficult to obtain because it's impossible to generate additional services without lessening goods. Furthermore, productive efficiency also incorporates creation of a good at the minimal point of the short run average cost curve (SRAC). SRAC curve implies that productive efficiency is an economic concept used to refer to the short run. Productive efficiency is closely linked to the concept of technical efficiency with regards to use of labor and capital.

In certain cases, productive efficiency is confused with allocative efficiency, which is an economic concept associated with resource allocation and distribution in the society. The concept focuses on the marginal benefit of consumption in comparison to the marginal cost. Therefore, the occurrence of allocative efficiency is realized when the marginal benefit of consumption equals the marginal cost. In addition to being linked to social efficiency, allocative efficiency does not support the existence of monopolies in an economy. This presence of monopolies is usually considered as allocatively inefficient since they are more likely to establish prices that are higher than the marginal cost.

Based on the definitions of these concepts, productive efficiency implies allocative efficiency since the ability to be productive efficient is invaluable if resources are not distributed or allocated efficiently. While goods may be produced on a production possibility frontier that contributes to the achievement of productive efficiency, the inability to allocate resources efficiently may result in lack of enough necessary goods in the society. This is primarily because the economy is likely to produce unnecessary goods to the society despite achieving product efficiency in the economy.