Efficiency, in scientific parlance, is the ratio of output to input, expressed as percentage. Basically it’s a measure of effectiveness a system performs, or how efficiently it uses inputs to produce outputs.
In economics, efficiency, or economic efficiency occurs when the cost of producing a given output is as low as possible. Production of a unit of goods and services is termed economically efficient when that unit of goods or services is produced at the lowest possible cost. This is static efficiency.
2 types of efficiency’s available to describe the state of production.
- Technological efficiency – it occurs when it’s impossible to increase outputs without increasing inputs.
- Economic efficiency – it occurs when it’s impossible to increase outputs per unit of inputs.
One thing to note though, that technological efficiency is a result of most advanced production method, whereas economic efficiency is a result of most profitable production method.
In welfare economics, efficiency is achieved when larger total welfare is impossible given a certain basket of limited resources; or, some people cannot be happier or better-off with no one else being less happy or worse-off. That is, all available resources have been made full and good use of. Or more simply, correct people get correct goods and services. This is allocative efficiency.
Market efficiency is measured by the total surplus achieved and whether it is maximized among all members of society.