What are examples of economic efficiency?
Answers
Answer:
An example of efficiency is a reduction in the number of workers needed to make a car.
Answer:
British politician and author Benjamin Disraeli once wrote: “There can be economy only when there is efficiency.” While this statement is most definitely an exaggeration, efficiency is a very important concept in economics.
In the introduction, we explored the need to develop a normative criterion for the evaluation of subjective questions. In economics, one of the most important normative criteria is efficiency. Efficiency, economic efficiency, and Pareto efficiency are essentially synonymous:
if we are in a position such that a person cannot be made better off without making someone else worse off, then this position is efficient.
An exchange at this point would be inefficient.
For example, if you have a bag of your favourite candies, and a friend asks for one, as long as you feel as though you are losing something by giving him one, the exchange is inefficient – even if his increase in happiness means only a slight drop in yours. (Note that if giving him a candy makes you happier despite losing a candy, it could be efficient to exchange)
This is noticeably different than equitable, where resources are distributed in a fair manner. It follows that:
if we are in a position such that a person can be made better off without making someone else worse off, then this position is inefficient.
An exchange at this point would be efficient.
For example, if you accidentally purchase a pair of shoes that do not fit you but fit your friend, and your friend buys the same pair of shoes that do not fit her but fit you – you would both be made better off by trading shoes. This would be an efficient trade. The position you were in was inefficient.
An efficient exchange occurs when changes can be made that will:
Make someone better off, while
Not making anyone worse off
These “win-win” opportunities happen to be quite rare, as they are usually acted upon. Such win-win’s also have a special classification: A Pareto Improvement. It is difficult to find a perfect example of a Pareto improvement, as most actions harm at least one party. Using this terminology, we can determine that:
A situation is efficient if there are no Pareto Improvements
A situation is inefficient if there are Pareto Improvements
In a situation where there is an opportunity for a Pareto Improvement, the opportunity should be taken advantage of. A major limitation of this metric is that it gives us no direction on the desirability of changes that make some people better off while making others worse off other than to say they are inefficient.
This limitation is important. To further develop this idea, we must follow the path of Vilfredo Pareto