Concept

Economic efficiency

Summary
In microeconomics, economic efficiency, depending on the context, is usually one of the following two related concepts:
  • Allocative or Pareto efficiency: any changes made to assist one person would harm another.
  • Productive efficiency: no additional output of one good can be obtained without decreasing the output of another good, and production proceeds at the lowest possible average total cost.
These definitions are not equivalent: a market or other economic system may be allocatively but not productively efficient, or productively but not allocatively efficient. There are also other definitions and measures. All characterizations of economic efficiency are encompassed by the more general engineering concept that a system is efficient or optimal when it maximizes desired outputs (such as utility) given available inputs. Standards of thought There are two main standards of thought on economic efficiency, which respectively emphasize the distortions created by government
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