The Concept of Efficiency
In analyzing an economy. we are centrally concerned with the concept of allocation efficiency or (sometimes called Pareto or Pareto optimal). An economy is efficient when it provides its consumers with the most desired set of goods and services, given the resources and technology of the economy.
Allocation efficiency (or efficiency) occurs when no possible reorganization of production can make an~’one better off without making someone else
worse off. Under conditions, of allocative efficiency, one person’s satisfaction 01′ utility can be increased only by lowering someone else’s utility. ~e can think of the concept of efficiency intuitively in terms of the production-possibility frontier. An economy is clearly inefficient if it is inside the PPF. If we move out to the PPF, no one need’ suffer a decline in utility. At a minimum, an efficient economy is on its PPF. But efficiency goes further and requires not only that the right mix of goods be produced
but also that these goods be allocated among consumers to maximize consumer satisfactions.
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