The term economic efficiency, as its name implies, is the agility in which an economic system uses productive resources in order to satisfy its needs. Todaro defines it as the concept that means in matters of production, "to use the factors of production in combinations of lower cost, in consumption, allocation of expenses that maximize consumer satisfaction (utility)." Furthermore, it is said that one economic system is more efficient than another (in relative terms) if it provides more goods and services for society using the same economic resources.
The origin of this concept, at present, is associated with that of the marginalist school, from the labor of Antoine Augustin Cournot and Jules Dupuit, who introduced, respectively, the concepts of business and social profit maximization or profit.
One of the many objectives of the economy is related to increasing production, which has been present since its inception. Experts in the field, used terms such as increased product or production, increased productivity, whether of specific machines or the system in general, among others.
Economic efficiency encompasses two very important aspects which are:
- Productive efficiency: it is the situation in which it is not possible to increase the quantity produced of some good or service, unless the quantity produced of some other is decreased, using all the resources and the best available technology. In other words, new reallocations of resources do not allow to produce more of some good without having to produce less of some other. The only way to increase the production of all goods is by improving technology or increasing the amount of resources. This implies that each of the individual producers is not only obtaining the maximum production using the minimum of resources, but also that production is achieved at the minimum possible cost.
- Exchange and Consumption Efficiency: a situation in which there is such a distribution of factors and goods among people, that if it is changed to benefit some individual, it will necessarily harm another. In other words, there is no other redistribution of goods and factors between people that improves the well - being of all of them simultaneously.
