Economic efficiency 241232 219753366 2008-06-16T19:00:09Z Cretog8 98127 not measures, really '''Economic efficiency''' is a general term in economics describing how well a system is performing, in generating the maximum desired 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. Economic efficiency is used to refer to a number of related concepts. A system can be called economically '''efficient''' if: * No one can be made better off without making someone else worse off. * More output cannot be obtained without increasing the amount of inputs. * Production proceeds at the lowest possible per unit cost. These definitions of efficiency are not exactly equivalent. However, they are all encompassed by 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. Market economies are generally believed to be more efficient than other known alternatives. The [[Fundamental theorems of welfare economics|first fundamental welfare theorem]] provides some basis for this belief, as it states that any perfectly competitive market equilibrium is efficient (but only if no [[market imperfection]]s exist). ''[[Microeconomic reform]]'' are policies that aim to reduce economic distortions, and increase economic efficiency. However, there is no clear theoretical basis for the belief that removing a market distortion will increase economic efficiency. The [[Theory of the Second Best]] states that if there is some unavoidable market distortion in one sector, a move toward greater market perfection in another sector may actually decrease efficiency. There are several alternate criteria for 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 reform]] ==See also== *[[Welfare economics]] *[[Distribution (economics)]] *[[Efficiency ratio|Business efficiency]] *[[Compensation principle]] *[[Inefficiency]] [[Category:Economic efficiency]] [[el:Αποτελεσματικότητα]] [[ja:効率性]] [[sq:Eficenca]] [[fi:Tehokkuus]]