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Economic Terms

All   0-9   A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

X-Inefficiency

Created when there is a lack of competition in a market so firms average costs are higher than they would be with competition. The lack of incentive to control costs causes the average cost of production to be higher than necessary and as a result will be technically inefficient too.

Below is a diagram of a firm's AC curve to show that when organisational slack leads to a sudden rise in a firm's costs this causes them to move off the existing AC curve to a point that is higher. This does not correspond to an AC curve shift because fundamentally nothing has change to their average costs its just poor managemnt has caused the firm to lie somewhere above this curve.


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