Economic Efficiency

What is Economics?

A branch of study that concerns itself

with the problem of allocating scarce
resources so to attain the optimum
satisfaction of society’ unlimited
wants.

What is Efficiency?

Economic state whereas every

resources is optimally allocated to
serve individual or entity in the best
way while we minimize the waste and
inefficiency of an available product,
services and goods
What is Economic Efficiency?

Economic efficiency implies an

economic state in which every
resource is optimally allocated to
serve each individual or entity in
the best way while minimizing
waste and inefficiency. When an
economy is economically efficient,
any changes made to assist one
entity would harm another. In
terms of production, goods are
produced at their lowest possible
cost, as are the variable inputs of
production.
 What is allocation Efficiency?

A condition in a market when all capital and other resources are

assigned to projects with the highest profitability. In an environment
of allocation efficiency, only the projects with the highest potential
profitability receive funding and then only in the precise amount that
is needed.

The basic principle of allocative efficiency is that it guarantees a

proper allocation of resources based on the needs and wants of
consumers. In economic terms, the allocative efficiency represents
the utility derived from the consumption of a good or a service with
respect to a certain level of price. Therefore, both producers and
consumers benefit.
As long as the marginal benefit of consuming additional good is above the
marginal cost of producing it production will increase, this is because price
consumer are willing to pay exceed the cost face by the producer, once the price
Consumer are willing to pay meets the cost producer face equally the reach at this
point consumer and producer surplus are maximized, so in this condition their
marginal benefits or price is equal to marginal cost that resolves them allocative
efficiency
Malcolm wants to buy a new car. However, he doesn’t know what brand would suit him the
best or what color to choose. So, he goes to the car seller, and he asks for advice.

Most car retailers have in-demand vehicles, efficient car most consumers would buy or are
willing to buy. Therefore, Malcolm assumes that red cars sells the most and are the ones with
the greatest demand. If this stands true, then this represents the allocated efficiency, which
suggests that the availability of cars is based on the limited resources of car retailers, who
know what will sell the most. So, they provide what consumers need to sell more cars and
realize a higher profit.

Malcolm’s marginal benefit is almost equal to the car retailer’s marginal cost, which
represents the Peso amount that the car retailer will pay to acquire (produce) extra units of
cars. Also, while not all consumers will agree on a red car, if a large group of consumers shows
a preference for red cars, car retailers will choose to promote and sell this type of cars.

Allocative efficiency means managements across the economy is deploying resources in the
most efficient manner to match customer preferences.
 What is Pareto Efficiency?

Pareto efficiency, or Pareto

optimality, is an economic state
where resources cannot be
reallocated to make one individual
better off without making at least
one individual worse off. Pareto
efficiency implies that resources are
allocated in the most efficient
manner, but does not imply equality
or fairness.
 Pareto Efficiency Made Simple

If we build a new airport – let us assume there

are winners and losers:

The private and external benefits are

estimated at Php. 2.5Billion

The cost of building airport is Php. 1.9 Billion

Residents living nearby see a loss in personal

welfare of 60 Million per year (due to pollution
and congestion)

The benefit to the society are Economic growth

and attracts more investor and boost tourism.

However, using principles of Pareto efficiency

– this is not a Pareto improvement because
those living nearby lose out.
Pareto improvement occurs when a change in allocation harms no one and helps
at least one person, given an initial allocation of goods for a set of persons. The
theory suggests that Pareto improvements will keep enhancing value to an
economy until it achieves a Pareto equilibrium, where no more Pareto
improvements can be made.
 Is this Pareto Improvement?

Consider the example of two criminals

arrested for a crime. Prosecutors have
no hard evidence to convict them.
However, to gain a confession, officials
remove the prisoners from their
solitary cells and question each one in
separate chambers. Neither prisoner
has the means to communicate with
each other. Officials present 4 deals:

1. If both confess, they will each receive

a 5-year prison sentence.
2. If prisoner A confesses but prisoner B
does not, prisoner A will be Free and
prisoner B will get 20 years.
3. If prisoner B confesses but prisoner A
does not, prisoner A will get 20 years
and prisoner B will be set Free
4. If neither confesses, They both
receive 1- year in prison
 Pareto Example
Making prisoners in jail do some socially
useful task rather than sitting in a cell.

If prisoners are sitting for 23 hours in a

cell, there is a waste of resources. It costs
the taxpayer money, and the prisoners
may become disillusioned with life and
more likely to remain a criminal after
leaving jail. However, if prisoners were
escorted to pick up litter from the street
and countryside, there would be a Pareto
improvement because society gains
some benefit from prisoners picking up
litter. Also, prisoners may gain more self-
esteem from doing a socially useful task Litter pickers in the Tour de France
– rather than getting bored in prison. (Yorkshire 2014)
Release Date: Friday, June 30, 2017

The Philippines had a total population of 100,981,437 persons based on the 2015
Census of Population

Total population went up by 8.6 million persons from 2010 Census of Population
and Housing (CPH) count of 92,337,852 persons.

The population during the year 2000 census was 76.5M

Females outnumbered males among baccalaureate degree holders

Of the total population 5 years old and over, 33.5 percent had attended or completed
elementary education, 36.4 percent had reached or finished high school, 10.5 percent was
college undergraduate, and 11.1 percent was baccalaureate/college graduate.

Among those with baccalaureate degree, there were more females (56.0 percent) than males
(44.0 percent). Similarly, among those with post baccalaureate courses, females (59.9 percent)
outnumbered males (40.1 percent).

School attendance rate was higher among females than among males

Of the 40,835,754 household population aged 5 to 24 years, 69.0 percent was attending
school in School Year (SY) 2015-2016. In 2010, the rate of school attendance in SY 2009-2010
was lower at 64.5 percent.

By sex, the school attendance rate in 2015 was higher among females (69.4 percent) than
among males (68.6 percent). The same trend was observed in 2010.
Simple literacy rate was recorded at 98.3 percent

The Philippines posted a literacy rate of 98.3 percent among the 78,918,842
household population aged 10 years and over. This is higher than the 97.1 percent
literacy rate that was recorded in 2010. In the 2010 Census of Population and
Housing and POPCEN 2015, a person is considered literate if he/she is able to read
and write a simple message in any language or dialect.

Literacy rate in 2015 was slightly higher among females (98.4 percent) than among
males (98.2 percent). Similarly, literacy rate was slightly higher among females (97.2
percent) than among males (97.0 percent) in 2010.
 Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Total Unemployment Rate 8.0 7.3 7.4 7.5 7.3 7.0 7.0 7.1 6.6 6.3 5.4

Male Unemployment Rate 8.2 7.5 7.6 7.6 7.6 7.3 7.2 7.3 6.9 6.6 5.6

Female Unemployment Rate 7.6 7.0 7.1 7.2 6.9 6.6 6.7 6.8 6.1 5.8 5.2
When prices rise for energy, food, commodities, and other goods and services,
the entire economy is affected. Rising prices, known as inflation, impact the cost
of living, the cost of doing business, borrowing money, mortgages, corporate and
government bond yields, and every other facet of the economy.

Inflation can be both beneficial to economic recovery and, in some cases,

negative. If inflation becomes too high the economy can suffer; conversely, if
inflation is controlled and at reasonable levels, the economy may prosper. With
controlled, lower inflation, employment increases, consumers have more money
to buy goods and services, and the economy benefits and grows. However, the
impact of inflation on economic recovery cannot be assessed with complete
accuracy. Some background details will explain why the economic results of
inflation will differ as the inflation rate varies.
If demand rises faster than firms can increase supply, firms will respond to the
excess demand and supply constraints by putting up prices.

In a period of rapid growth, firms will employ more workers and unemployment
will fall. As unemployment falls, firms may find it harder to fill job vacancies; this
shortage of labor will cause wages to rise.

If wages rise, firms costs increase and therefore firms pass these cost increases on
to consumers.

Also, with rising wages, workers have more disposable income to spend.

With higher economic growth, people may start to expect inflation – and this
expectation of rising prices can become self-fulfilling.

Therefore, rapid economic growth tends to cause upward pressure on prices and
wages – leading to a higher inflation rate.
 Total Length of National Roads (In Kilometers)
2010 - 2018
BASILAN 0 0 0
LANAO DEL SUR 0 0 0
MAGUINDANAO 0 0 0
SULU 0 0 0

PALAWAN 1003.1 1003.1 1003.1

NEGROS OCCIDENTAL 1057.7 1077.1 1077.1
NCR 1113.5 1120.3 1121.2
 This project forms part of the total
regional connectivity between the
Region XIII and Region X and promotes
biodiversity in the Northern Mindanao
Corridor. It will encourage farmers to till
additional farmlands. Consequently, this
promotes development in different
fields such as eco-tourism, agriculture,
industry and domestic trade. This
project will provide an accessible route
for the remote area settlers, thus
Major
Budget Start Date End Date Status Region Region uplifting their economic growth.
PHP PROJECT Furthermore, the project reduces
4,873,000,000.00 05/26/2015 2018/04/03 IMPLEMENTATION Mindanao XIII - CARAGA
hauling cost and travel time of agri-farm
The project involves 57-km road opening and
produce products to the nearest market.
upgrading (unpaved to paved) with pavement width of It also provides access of public facilities
6.70 meters and thickness of 0.28 meters and and services as well as promote peace to
construction of six (6) concrete bridges (327lm). It conflict affected areas.
also includes provision of drainage and slope
protection structures/facilities with road safety
devices.
 The project start at the
Junction of Maria Clara Lorenzo
Lobregat Highway National
Highway and Barangay Culianan
traversing Barangay Culianan –
Pasobolong – Boalan – Lumbangan
– Tumaga – Pasonanca –
Cabatangan – Malagutay –
Sinunuc – Maasin – Tulungatung –
Pamucutan and Sinubong.

Budget Start Date End Date Status Major Region Region

PHP 2,230,000,000.00 9-01-2012 12-28-2018 PROJECT IMPLEMENTATION Mindanao IX - Zamboanga Peninsula

A 36.77-kms by-pass road project which involves the Construction

/Road Opening/ Improvement / Road Concreting of a 12-meter wide,
2-lane road with slope protection including the construction of 6
bridges.
The PPP project involves the
construction and operation and
maintenance (O&M) of a 8 km.
4-lane elevated expressway
over the Philippine National
Railway (PNR) right of way. It
starts from C3 Road in
Caloocan through Manila
crossing Espana towards PUP,
Sta. Mesa connecting Metro
Manila Skyway Stage 3
(MMSS3). Once completed,
the NLEX-SLEX Connector
road is expected to decongest
traffic in Metro Manila by
providing an alternative to C-5
Road, Efipanio de los Santos
Avenue (EDSA), and other
major thoroughfares, and cut
THE END