What is 'Efficiency'
Efficiency signifies a level of performance that describes a process that uses the lowest amount of inputs to create the greatest amount of outputs. Efficiency relates to the use of all inputs in producing any given output, including personal time and energy. Efficiency is a measurable concept that can be determined by determining the ratio of useful output to total input. It minimizes the waste of resources such as physical materials, energy and time, while successfully achieving the desired output.
BREAKING DOWN 'Efficiency'
Economic efficiency refers to the optimization of resources in order to best serve each person in that economic state. There is no specific threshold that determines the efficiency of an economy, but indications include goods being produced at the lowest possible cost and labor being performed with the greatest possible output.
Market efficiency reflects how accurately stock prices reflect all available information. Similarly, operational efficiency occurs when stock prices accurately reflect the costs required to provide them.
Breakthroughs in efficiency have often coincided with the invention of new tools that contribute to labor. Early examples include the wheel and the horse collar, which redistributes the weight on a horse's back so the animal can carry large loads without being overburdened. The advent of tools such as the steam engines and motor vehicles during the Industrial Revolution allowed people to move farther in shorter periods of time, and contributed to efficiency in travel and trade. The Industrial Revolution also introduced new sources of power, such as burning fossil fuels, that were cheaper, more effective, and able to be used more broadly.
Movements such as the Industrial Revolution also brought efficiency in time. For example, the factory system, in which each participant focuses on a specific task in the factory line, allowed operations to move along much more quickly increasing output while also saving time. Many scientists have also developed practices for the most efficient ways to perform specific tasks. A famous example in popular culture of the quest for efficiency is the biographical novel "Cheaper by the Dozen." Frank Gilbreth, the author and patriarch of the family in the book, develops systems to maximize efficiency in even the most mundane tasks, such as brushing your teeth.
Impacts of Efficiency
An efficient society is better able to serve its citizens and operate in a healthy manner. When goods are produced efficiently, they are often able to be sold at a lower price. The advances that have been made in efficiency have also allowed those affected to maintain a higher standard of living, including living in homes with electricity and running water and getting around more quickly. Efficiency results in a sharp drop in hunger and malnutrition, as goods are able to be moved farther and more quickly. Also, advances in efficiency have allowed the work week to decline considerably. More work can now be performed in a shorter amount of time, so it is no longer necessary to spend those extra hours laboring.
Efficiency is an important attribute because all inputs are scarce. Time, money and raw materials are limited, so it makes sense to try to conserve them while maintaining an acceptable level of output or a general production level.
Being efficient simply means reducing the amount of wasted inputs.