When is an economic outcome said to be efficient

Synonyms Market-measured efficiency ; Static and dynamic efficiency. This is a preview of subscription content, log in to check access. Aigner, D. Formulation and estimation of stochastic frontier production function models. Journal of Econometrics, 6 , 21— Google Scholar. Banker, R. Some models for estimating technical and scale inefficiencies in data envelopment analysis.

Management Science, 30 9 , — Battese, G. Frontier production functions, technical efficiency and panel data: With application to paddy farmers in India. Journal of Productivity Analysis, 3 , — A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empirical Economics, 20 , — Estimation of a production frontier model: With application to the pastoral zone of eastern Australia.

Australian Journal of Agricultural Economics, 21 , — Cabral, L. Introduction to industrial organization. Charnes, A. Short communication: Measuring the efficiency of decision making units.

European Journal of Operational Research, 3 , Church, J. Industrial organization. A strategic approach. Boston: Irwin McGraw-Hill. Coelli, T. An introduction to efficiency and productivity analysis. Farrell, M. The measurement of productive efficiency. Holmstrom, B. The theory of the firm. At peak economic efficiency when the economy is at productive and allocative efficiency , the welfare of one cannot be improved without subsequently lowering the welfare of another.

This point is called Pareto efficiency. Even if Pareto efficiency is reached, the standard of living of all individuals within the economy may not be equal. Pareto efficiency does not include issues of fairness or equality among those within a particular economy.

Instead, the focus is purely on reaching a point of optimal operation regarding the use of limited or scarce resources. It states that efficiency is obtained when a distribution exists where one party's situation cannot be improved without making another party's situation worse. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.

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Key Takeaways Economic efficiency is when every scarce resource in an economy is used and distributed among producers and consumers in a way that produces the most economic output and benefit to consumers. Economic efficiency can involve efficient production decisions within firms and industries, efficient consumption decisions by individual consumers, and efficient distribution of consumer and producer goods across individual consumers and firms.

Pareto efficiency is when every economic good is optimally allocated across production and consumption so that no change to the arrangement can be made to make anyone better off without making someone else worse off. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Welfare Economics Welfare economics focuses on finding the optimal allocation of economic resources, goods, and income to best improve the overall good of society.

What Is the Austrian School? The Austrian school is an economic school of thought that originated in Vienna during the late 19th century with the works of Carl Menger. What Is an Administered Price? An administered price is the price of a good or service as dictated by a government, as opposed to market forces. Pareto Efficiency Definition Pareto efficiency is an economic state in which resources are allocated in the most efficient manner.

The Definition of Efficiency Efficiency is a level of performance that uses the lowest amount of inputs to create the greatest amount of outputs. Learn how to calculate efficiency. Partner Links. Related Articles. Macroeconomics Advantages of a Market Economy. Economics Main Characteristics of Capitalist Economies.