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Economic efficiency

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262:, which are significant in real markets. Furthermore, Pareto efficiency is a minimal notion of optimality and does not necessarily result in a socially desirable distribution of resources, as it makes no statement about equality or the overall well-being of a society. 203:. This is again the case for the long run equilibrium of perfect competition. For an extensive discussion of many other types of productive efficiency and its measures (Farrell, Hyperbolic, Directional, Cost, Revenue, Profit, Additive, etc.) and their relationships. 535:
Sickles, R., & Zelenyuk, V. (2019). Measurement of Productivity and Efficiency: Theory and Practice. Cambridge: Cambridge University Press. doi:10.1017/9781139565981
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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.
177:, the resources must be allocated to various industries in just the right amounts, otherwise too much or too little output gets produced. When drawing diagrams for 146:
Further, there are differences in views on microeconomic versus macroeconomic efficiency, some advocating a greater role for government in one sphere or the other.
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are generally believed to be closer to efficient than other known alternatives and that government involvement is necessary at the macroeconomic level (via
181:, allocative efficiency is satisfied if output is produced at the point where marginal cost is equal to average revenue. This is the case for the 247: 311:(English-speaking countries, notably the United States, United Kingdom, Canada, Australia and New Zealand) this is associated with 17: 200: 534: 199:. When drawing diagrams for businesses, this condition is satisfied if the equilibrium is at the minimum point of the 143:, though these terms are also used more narrowly to refer to particular views, especially advocating laissez faire. 346:, and move toward economic efficiency. However, there is no clear theoretical basis for the belief that removing a 75:
may be allocatively but not productively efficient, or productively but not allocatively efficient. There are also
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provides some basis for the belief in efficiency of market economies, as it states that any perfectly competitive
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definitions and measures. All characterizations of economic efficiency are encompassed by the more general
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Markets and freedom: Achievements and limitations of the market mechanism in promoting individual freedoms
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Advocates of an expanded government role follow instead in alternative streams of progressivism; in the
166:. In other words, when every good or service is produced up to the point where one more unit provides a 55:: no additional output of one good can be obtained without decreasing the output of another good, and 631: 354: 464: 278:(little or no government role in the economy) follow from the 19th century philosophical tradition 231:. At the microeconomic level there is debate about how to achieve efficiency, with some advocating 127:
government involvement). These are at times competing, at times complementary—either debating the
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There are two main standards of thought on economic efficiency, which respectively emphasize the
459: 389: 294: 258:. The assumption of perfect competition means that this result is only valid in the absence of 56: 399: 369: 192: 155: 52: 42: 469: 431: 335: 283: 279: 182: 8: 454: 316: 298: 290: 259: 228: 186: 136: 379: 271: 251: 196: 68: 60: 605: 479: 474: 442: 436: 394: 347: 339: 255: 116: 46: 135:
government involvement. Broadly speaking, this dialog takes place in the context of
508: 167: 512: 38:, depending on the context, is usually one of the following two related concepts: 324: 301: 220: 72: 235:, to remove government distortions, while others advocate regulation, to reduce 546: 416: 320: 236: 224: 212: 159: 31: 615: 484: 275: 240: 232: 216: 163: 140: 27:
Situation in which nothing can be improved without something else being hurt
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if the price of a product that the market is supplying is equal to the
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occurs when units of goods are being supplied at the lowest possible
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Thomas. Government Regulation of Business. 2013, McGraw-Hill.
49:: any changes made to assist one person would harm another. 170:
to consumers less than the marginal cost of producing it.
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Patnaik, Prabhat (1997). "On the Concept of Efficiency".
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Encyclopedia of Quality of Life and Well-Being Research
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Economic efficiency can be characterized in many ways:
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is the implementation of policies that aim to reduce
131:level of government involvement, or the effects of 239:and imperfections, particularly via internalizing 503:Petrou, Anastasia (2014). "Economic Efficiency". 613: 282:. They are particularly associated with the 91:when it maximizes desired outputs (such as 562:. New York, Oxford University Press (USA). 422:Applications of these principles include: 350:will always increase economic efficiency. 67:These definitions are not equivalent: a 330: 319:. In Germany the guiding philosophy is 297:(from the 1870s onwards), and with the 98: 14: 614: 502: 315:and, at the macroeconomic level, with 265: 150:Allocative and productive efficiency 552: 206: 24: 585: 565: 162:consumers place on it, and equals 25: 643: 599: 248:first fundamental welfare theorem 173:Because productive resources are 115:government involvement) and the 59:proceeds at the lowest possible 560:Economics of the welfare state 539: 528: 519: 496: 13: 1: 593:Economic and Political Weekly 513:10.1007/978-94-007-0753-5_818 490: 154:A market can be said to have 76: 211:The mainstream view is that 7: 545:Economics, fourth edition, 448: 427:Efficient-market hypothesis 360: 10: 648: 577:Oxford Economic Papers, 45 95:) given available inputs. 355:theory of the second best 83:concept that a system is 465:Distribution (economics) 293:(through the 1870s) and 201:average total cost curve 406:social welfare function 385:Kaldor–Hicks efficiency 375:Distributive efficiency 313:institutional economics 460:Compensation principle 390:Operational efficiency 295:neoclassical economics 18:Efficiency (economics) 608:article by Paul Heyne 400:Productive efficiency 370:Allocative efficiency 193:Productive efficiency 156:allocative efficiency 53:Productive efficiency 470:Economic equilibrium 432:Microeconomic reform 340:economic distortions 336:Microeconomic reform 331:Microeconomic reform 280:classical liberalism 260:market imperfections 223:) to counteract the 183:long-run equilibrium 99:Standards of thought 622:Economic efficiency 595:. October 25, 1997. 455:Business efficiency 317:Keynesian economics 291:classical economics 229:Keynesian economics 187:perfect competition 137:economic liberalism 36:economic efficiency 404:Optimisation of a 380:Dynamic efficiency 272:limited government 266:Schools of thought 252:market equilibrium 197:average total cost 61:average total cost 558:Barr, N. (2004). 480:Uneconomic growth 475:Pareto efficiency 443:Welfare economics 437:Production theory 395:Pareto efficiency 348:market distortion 47:Pareto efficiency 16:(Redirected from 639: 632:Economic reforms 580: 571:Sen, A. (1993). 569: 563: 556: 550: 543: 537: 532: 526: 523: 517: 516: 500: 287:economic schools 256:Pareto efficient 213:market economies 207:Mainstream views 168:marginal benefit 123:(and reduced by 111:(and reduced by 21: 647: 646: 642: 641: 640: 638: 637: 636: 612: 611: 602: 588: 586:Further reading 583: 570: 566: 557: 553: 544: 540: 533: 529: 524: 520: 501: 497: 493: 451: 363: 333: 325:Freiburg School 302:Austrian school 268: 237:market failures 221:monetary policy 209: 152: 101: 73:economic system 28: 23: 22: 15: 12: 11: 5: 645: 635: 634: 629: 627:Microeconomics 624: 610: 609: 601: 600:External links 598: 597: 596: 587: 584: 582: 581: 564: 551: 547:Alain Anderton 538: 527: 518: 494: 492: 489: 488: 487: 482: 477: 472: 467: 462: 457: 450: 447: 446: 445: 440: 434: 429: 420: 419: 417:X-inefficiency 414: 408: 402: 397: 392: 387: 382: 377: 372: 362: 359: 332: 329: 327:of economics. 321:Ordoliberalism 274:, in the form 267: 264: 225:economic cycle 208: 205: 160:marginal value 151: 148: 100: 97: 65: 64: 50: 32:microeconomics 26: 9: 6: 4: 3: 2: 644: 633: 630: 628: 625: 623: 620: 619: 617: 607: 604: 603: 594: 590: 589: 579:(4), 519–541. 578: 574: 568: 561: 555: 548: 542: 536: 531: 522: 514: 510: 507:: 1793–1794. 506: 499: 495: 486: 485:Zero-sum game 483: 481: 478: 476: 473: 471: 468: 466: 463: 461: 458: 456: 453: 452: 444: 441: 438: 435: 433: 430: 428: 425: 424: 423: 418: 415: 412: 409: 407: 403: 401: 398: 396: 393: 391: 388: 386: 383: 381: 378: 376: 373: 371: 368: 367: 366: 358: 356: 351: 349: 345: 341: 337: 328: 326: 322: 318: 314: 310: 305: 303: 300: 296: 292: 288: 285: 281: 277: 276:laissez-faire 273: 270:Advocates of 263: 261: 257: 253: 249: 244: 242: 241:externalities 238: 234: 233:laissez-faire 230: 226: 222: 218: 217:fiscal policy 214: 204: 202: 198: 194: 190: 188: 184: 180: 176: 171: 169: 165: 164:marginal cost 161: 157: 147: 144: 142: 141:neoliberalism 138: 134: 130: 126: 122: 118: 114: 110: 106: 96: 94: 90: 86: 82: 78: 74: 70: 62: 58: 54: 51: 48: 44: 41: 40: 39: 37: 33: 19: 606:"Efficiency" 592: 576: 567: 559: 554: 541: 530: 521: 504: 498: 421: 413:maximization 364: 352: 344:deregulation 334: 306: 269: 245: 227:– following 210: 191: 172: 153: 145: 132: 128: 124: 120: 112: 108: 102: 66: 35: 29: 309:Anglosphere 119:created by 117:distortions 109:governments 107:created by 105:distortions 81:engineering 616:Categories 491:References 284:mainstream 179:businesses 125:increasing 113:decreasing 57:production 43:Allocative 323:, in the 299:heterodox 85:efficient 71:or other 449:See also 361:Criteria 133:specific 411:Utility 129:overall 121:markets 93:utility 89:optimal 549:, p281 439:basics 175:scarce 69:market 77:other 353:The 342:via 246:The 219:and 509:doi 289:of 254:is 185:of 139:or 87:or 45:or 30:In 618:: 575:. 304:. 243:. 189:. 34:, 515:. 511:: 63:. 20:)

Index

Efficiency (economics)
microeconomics
Allocative
Pareto efficiency
Productive efficiency
production
average total cost
market
economic system
other
engineering
efficient
optimal
utility
distortions
distortions
economic liberalism
neoliberalism
allocative efficiency
marginal value
marginal cost
marginal benefit
scarce
businesses
long-run equilibrium
perfect competition
Productive efficiency
average total cost
average total cost curve
market economies

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