Economic efficiency Totally Explained

Everything about Economically Efficient totally explained

Efficiency is a general term in economics describing how well a system is performing, in generating the maximum output for given inputs with available technology. Efficiency is improved if more output is generated without changing inputs, or in other words, the amount of "friction" or "waste" is reduced. A system can be called economically efficient if

No one can be made better off without making someone else worse off.
The most output is obtained from a given amount of inputs.
Production proceeds at the lowest possible per unit cost.

These definitions of efficiency are not exactly equivalent. However, they all encompass the idea that nothing more can be achieved given the resources available.
An economic system is more efficient if it can provide more goods and services for society without using more resources. The term microeconomic reform often refers to policies whose stated goal is to increase economic efficiency.
There are several alternate measures of economic efficiency, these include:

Pareto efficiency

Kaldor-Hicks efficiency

X-efficiency

Allocative efficiency

Distributive efficiency

Productive efficiency

Optimisation of a social welfare function

Utility maximization For applications of these principles see:

Efficient market hypothesis

Welfare economics

Production theory basics

Microeconomic reformFurther Information

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