Definition of Efficiency principle:
The efficiency principle is an economic tenet stating that any action achieves the greatest benefit to society when the marginal benefits from the allocation of resources are equivalent to its marginal social cost. It lays the theoretical groundwork for cost-benefit analysis, which is how most decisions regarding the allocation of resources are made.
An economic theory that states that the maximum social benefit that is received from any type of action is received when the marginal social costs of resource allocation is equal to the benefits from such an allocation of resources. Lays the groundwork on how critical business decisions regarding resource allocation are made.
This principle is also at the heart of allocative efficiency, the perfect state where every good or service is produced up to the point where the last unit provides a marginal benefit that is equal to its marginal production cost. At this magical point, which almost never is achieved, there is no deadweight loss or misused resources.
How to use Efficiency principle in a sentence?
- The efficiency principle states that an action achieves most benefit when marginal benefits from its allocation of resources equal marginal social costs.
- The principle is central to the study of economics but is difficult to apply in practical scenarios because it is based on many assumptions.
- The efficiency principle lays the theoretical groundwork for cost-benefit analysis, which is how most decisions regarding the allocation of resources are made.
- The goal is to produce desired products at the lowest possible cost, eliminating deadweight loss or misused resources.
Meaning of Efficiency principle & Efficiency principle Definition