A dictionary defines efficiency as ‘the power to produce the result intended’. Explain what is intended by achieving economic efficiency and why its attainment is considered important.

Mark scheme

Marking points from the official mark scheme (May/June 2018). The mark or mark type is shown in brackets.

1. Explanation of meaning of efficiency and explanation of the analysis which ensures an efficient optimum may be reached. Productive and allocative efficiency are intended. Its attainment is considered important as it makes the best use of resources and allocative efficiency ensures that no one can be made better off without someone being worse off.
2. L4 (9-12): for a thorough explanation dealing with productive and allocative efficiency and a comment on the importance of both concepts
3. L3 (7-8): for a competent but less developed explanation of the terms with accurate but limited comment on the importance
4. L2 (5-6): for a correct but brief explanation with some attempt at analysis possibly with only one type of efficiency correctly elaborated, no comment on importance
5. L1 (1-4): for an answer that has some basic correct facts but includes irrelevancies and errors of theory
6. Individual actions are not always best for society as a whole. Discussion of reasons for market failure and hence the necessity/desirability of government intervention to achieve efficiency. Intervention could be by persuasion (nudge theory) rather than by enforcement, by designing choices to encourage decision-making in wider positive interests of society. Government intervention may thus be necessary, but it might not be sufficient to overcome inefficiency as there can be inefficiency in government through lack of information.
7. L4 (9-13): for an accurate discussion of market failure, with examples and a conclusion about the need for government intervention and whether such intervention is a sufficient solution
8. L3 (7-8): for a more limited discussion of the reasons for market failure and the need for the government but without a comment on whether such intervention is sufficient to overcome market failure
9. L2 (5-6): for a brief analysis of market failure with few examples and no conclusion about necessity or sufficiency
10. L1 (1-4): for an answer that has some basic correct facts but includes irrelevancies and errors of theory