mixture of decisions by individuals, firms, and government. However, economics can point out that some

choices are unambiguously better than others. This observation is based on the concept of efficiency. In

everyday usage, efficiency refers to lack of waste. An inefficient machine operates at high cost, while an

efficient machine operates at lower cost, because it is not wasting energy or materials. An inefficient

organization operates with long delays and high costs, while an efficient organization meets schedules, is

focused, and performs within budget.

The production possibilities frontier can illustrate two kinds of efficiency: productive efficiency and allocative

efficiency. Figure 2.4 illustrates these ideas using a production possibilities frontier between healthcare and

education.

FIGURE 2.4 Productive and Allocative Efficiency Productive efficiency means it is impossible to produce more of
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