Efficiency: 

Efficiency is one of the most important concepts in economics. Efficiency has several meanings but generally relates to how well an economy is able to allocate scarce resources to meet the needs and wants of consumers. Economic efficiency is a situation where no one can be made better off without making someone worse off.

Static efficiency is something that is present at a particular point in time and focuses on how much output can be produced at that point of time from a given supply of resources and whether producers are charging a price to consumers that reasonably reveals the cost of the factors of production used for producing a good or a service. There are two main types of static efficiency - allocative efficiency and productive efficiency.

When the value consumers place on a good or service, as reflected in the price they are willing to pay, equals the cost of the resources used up in production, then allocative efficiency is said to be achieved. The condition required for allocative efficiency is that Price equals Marginal cost. The satisfaction of this condition leads to the maximization of total economic welfare.

Productive efficiency is achieved when the output is produced at minimum average total cost. Productive efficiency refers to a firm's production costs and can be applied both to the short and long run. For instance, when a firm is producing close to the minimum point of its long run average total cost curve, then the firm is exploiting most of the available economies of scale. Productive efficiency exists when firms are minimizing the wastage of resources in their production processes.

When social marginal benefit equals social marginal cost then the socially efficient level of output and or consumption occurs. It is at this point social economic welfare is maximized.