Resources are limited. Consequently using them one way means forgoing their
use in another; and that in turn means forgoing one set of outputs in favour of
an alternative. Choosing that set of outputs which makes the greatest
contribution to welfare maximises what we get out of our limited resources.
*
In terms of the health production model, we are seeking to maximise the health
gains within the limited resources available for health. This model also helps to
distinguish the notion of technical efficiency from allocative efficiency (note 3).
Technical efficiency describes the relationship between inputs and outputs.
Technical efficiency is the maximisation of output from a given level of inputs.
Becoming technically efficient does not reduce output - it does not require
anything to be given up. It has no Opporttmity cost. Allocative efficiency is
concerned with the mix of outputs. Should resources be moved from housing to
health care, from education to defence? Allocative efficiency is the
maximisation of welfare from a given level of inputs. Becoming allocatively
efficient means changing output - forgoing one set of outcomes for another
(Mooney 1992).
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