Economic efficiency

Economic efficiency is the allocation or use of resources that produces the greatest attainable value under specified goals and constraints. It includes productive efficiency and allocative efficiency.

Pareto efficiency: An allocation is Pareto efficient when no feasible change can make someone better off without making someone else worse off. It formalizes one prominent criterion for judging whether an allocation leaves avoidable gains unrealized.
Opportunity cost: The value of the best alternative forgone when a choice is made. Using a resource efficiently requires accounting for what its next-best use would produce.
Equity (economics): Equity in economics concerns the fairness of how resources, opportunities, costs, or benefits are distributed. An allocation can be efficient while distributing its gains in ways many people consider unfair.
Pigouvian tax: A tax designed to make a decision-maker face the marginal external cost of an activity. It can improve efficiency when private choices impose costs omitted from market prices.
Externality: An externality is a cost or benefit of an activity that affects others without being reflected in its market price. Unpriced effects make private incentives diverge from the full social costs or benefits relevant to efficiency.
Allocative efficiency: Allocative efficiency occurs when the mix of goods produced reflects their marginal social value relative to production costs. It tests whether resources produce the kinds of goods and services valued most at the margin.
Marginal cost: The additional cost of producing one more unit of a good or service. It helps identify when expanding production uses resources worth more elsewhere.
Cost-effectiveness analysis: A method for comparing the costs of alternatives that pursue a specified outcome measured in common units. It evaluates least-cost achievement of a chosen goal, rather than overall value across all goals.
Cap-and-trade: An emissions-control system that sets a total limit and allows permits to be traded. Trading can achieve a fixed pollution target at lower total abatement cost.
Information asymmetry: A condition in which parties to an exchange have different information relevant to the transaction. Unequal information can prevent markets from reaching outcomes that would be efficient with full information.

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