Economic Efficiency

Economic efficiency studies production, distribution, and consumption assuming that the goal of these activities is to gain a return from using or moving resources. It is similar to the concept of mechanical efficiency, which measures the efficiency of physical processes by relating energy output to energy input.

However, unlike physical processes, in which output and input measures are the same—for example, newtons—measuring the efficiency of an economic action involves transforming physical quantities of resource inputs into physically different outputs, which may be valued in monetary units, or utility (i.e., satisfaction) units, or by some other measures, for example “equity” or “fairness,” on which unanimous agreement may [Page 1011]be lacking. Without agreement as to what is the relevant output measure or goal (e.g., your satisfaction or mine?), ...