Efficiency Principle

AAA

DEFINITION of 'Efficiency Principle'

An economic theory that states that the greatest benefit to society of any action is achieved when the marginal benefits from the allocation of resources are equivalent to the marginal social costs of the allocation.

INVESTOPEDIA EXPLAINS 'Efficiency Principle'

The efficiency principle lays the theoretical groundwork for cost-benefit analysis, which is how most critical business decisions regarding the allocation of resources are made. On its own, however, there are simply too many assumptions that must be made to determine "marginal social costs", which makes the usefulness of the efficiency principle questionable in practical terms.

RELATED TERMS
  1. Implicit Cost

    A cost that is represented by lost opportunity in the use of ...
  2. Incremental Cost

    The encompassing change that a company experiences within its ...
  3. Marginal Utility

    The additional satisfaction a consumer gains from consuming one ...
  4. Intertemporal Choice

    An economic term describing how an individual's current decisions ...
  5. Raw Materials

    A material or substance used in the primary production or manufacturing ...
  6. Cost-Benefit Analysis

    A process by which business decisions are analyzed. The benefits ...
Related Articles
  1. Explaining The World Through Macroeconomic ...
    Options & Futures

    Explaining The World Through Macroeconomic ...

  2. Economics Basics
    Economics

    Economics Basics

  3. Economic Indicators To Know
    Retirement

    Economic Indicators To Know

  4. What Is Fiscal Policy?
    Economics

    What Is Fiscal Policy?

comments powered by Disqus
Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  3. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  4. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
Trading Center