Different Types of Economic Efficiency Measures

Efficiency in jobs, production and in everyday activities is something that we all want. We put in the word 'Efficient' in resumes to help persuade our employers that we are qualified for the position. Companies advertise their services as effective and efficient. But, what is efficiency anyway and how is it defined? What are the ways that it can be measured? This article will attempt to answer the above questions as well as discuss a few measures that help gauge efficiency.

Efficiency is the general term that is used to state the condition where the maximum amount of output is produced for a specific amount of input. A process is most efficient when they can get the most produce or profit from a certain bulk of raw material or effort. It is said the improving efficiency is easy when the amount of factors that slow processes down is reduced, giving in to a smoother flow. A system or a process can be referred to as efficient when it meets several categories. One of the categories is: A system is efficient when production is witnessed to proceed at the lowest cost possible. Another is that: no improvement of something will cause a detrimental effect on another, in other words, the forward movement of one will not negatively affect another.

There are several processes by which efficiency is measured and one of them is the PARETO Efficiency. Pareto Efficiency is an economic concept that can be applied to several areas including game theory and the social sciences. 'Pareto' is derived from the mind behind this concept - the Italian Economist Vilfredo Pareto. A concept in the Pareto Efficiency Measure is called a Strong Pareto Optimum. In this concept, it is seen that when given a set of allocations, no move by one part of it can cause a negative effect on the other. Another is the Weak Pareto Optimum. In this area, it does not have to be as strict as that of the Strong Pareto Optimum.

Another type of efficiency measure is the X-Efficiency. A company or firm can achieve X-Efficiency if its output is the maximum that it can achieve with the manpower or technology that they have. If X-Efficiency is not achieved, it then falls into X-inefficiency. With the X-Efficiency theory, it is believed that in a market experiencing perfect competition, X-Inefficiency would not exist because no company that is less efficient than it's competitors would last. Other than the two mentioned, there are other forms of efficiency measures and these include: Kaldor-Hicks Efficiency, Allocative Efficiency, Distributive Efficiency and others.

In all other respects and measurements, efficiency is achieved when the least amount resources is utilized to produce the most outcome. It is a state that all companies, firms, organizations and governments want. Efficiency is not only limited to factories and production. Efficiency is also measured in services and in other factors that produce output from one type of input or groups of input. An institution needs to be efficient in order to survive in a competitive market.