Economic efficiency
From The Art and Popular Culture Encyclopedia
Related e |
Featured: |
Economic efficiency is, roughly speaking, a situation in which nothing can be improved without something else being hurt. Depending on the context, it 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 can be obtained without increasing the amount of inputs, 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.
Criteria
Economic efficiency can be characterized in many ways:
- Allocative efficiency
- Distributive efficiency
- Dynamic efficiency
- Informational efficiency is used to characterize financial markets
- Kaldor–Hicks efficiency
- Pareto efficiency
- Productive efficiency
- Optimisation of a social welfare function
- Utility maximization
- X-inefficiency
Applications of these principles include:
See also