Efficiency in the use and allocation of resources. In the use of resources, economic efficiency requires that any given output is produced at minimum cost, which means both that waste and technological inefficiency are avoided and that appropriate input prices are used to find the cost-rninirnizing production process. In the allocation of resources, economic efficiency requires that it must not be feasible to change the existing resource allocation in such a way that someone is made better off and no one worse off, since, if this is possible, the existing resource allocation must involve a 'welfare waste'. This criterion of allocative efficiency was first proposed by v. F. Pareto, and so is known as the Pareto criterion. Welfare economics have been concerned with translating these conceptions of economic efficiency into concrete propositions about economic policy and about the desirability of certain kinds of economic organization, e.g. the price system.
|Reference: The Penguin Dictionary of Economics, 3rd edt.|