Efficiency is a term used to describe optimal use of scarce resources. It measures how much of a particular good is produced with a minimum amount of input. Generally, efficient societies are better able to meet their citizens’ needs.
The concept of efficiency can be divided into static and dynamic efficiency. Static efficiency is the type of efficiency that happens at one particular time.
The dynamic type of efficiency is focused on efficiency over a period of time. This involves innovation and improved productivity. These elements are important to the concept of dynamic efficiency.
Allocative efficiency is achieved when the price of a good or service is equal to the marginal cost of producing it. When this happens, consumers are willing to pay a certain amount to purchase a given quantity.
Productive efficiency is a type of efficiency that aims to produce an outcome at the smallest average cost. Typically, this means using the least expensive production techniques. For example, a factory system can save a lot of time and money.
Allocative inefficiency occurs when a distribution of a good or service does not meet the preferences of its consumers. This may occur when there is a long queue for a public good, like the National Healthcare Service (NHS).
Social efficiency is a type of efficiency that is concerned with the distribution of resources in a society. This is usually done by taking into account the costs and benefits. As a result, a good or service is distributed in a way that benefits the population.