Economic efficiency

Efficiency is normally defined as a ratio of the quantity of some measure of output to the quantity of input required to bring it about. In economic theory, the desired output of economic activity is taken to be an increase in individual welfare, and the input required is some combination of the productive resources of land, labour and capital. The economic efficiency of an activity is thus taken refer to the resources required to generate a notional unit increase in welfare, and the term efficient is used to denote the ideal state of affairs in which an activity is optimum in that respect.

The concept of economic efficiency is central to the theorems of welfare economics and to the practice of cost/benefit analysis