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. Marginal Utility

    The additional satisfaction a consumer gains from consuming one ...
  3. Incremental Cost

    The encompassing change that a company experiences within its ...
  4. Economics

    A social science that studies how individuals, governments, firms ...
  5. Raw Materials

    A material or substance used in the primary production or manufacturing ...
  6. Intertemporal Choice

    An economic term describing how an individual's current decisions ...
RELATED FAQS
  1. What are the primary sources of market risk?

    Market risk is the risk of loss due to the factors that affect an entire market or asset class. Market risk is also known ... Read Full Answer >>
  2. In what types of economies are regressive taxes common?

    Regressive taxation systems are more likely to be found in developing countries or emerging market economies than in the ... Read Full Answer >>
  3. What are the different types of price discrimination and how are they used?

    Price discrimination is one of the competitive practices used by larger, established businesses in an attempt to profit from ... Read Full Answer >>
  4. What are the pros and cons of operating on a balanced-budget?

    Few issues are more complicated, contentious and controversial in contemporary American politics than balancing the federal ... Read Full Answer >>
  5. What are the different sources of business risk?

    A certain risk level is inherent in running a business. A company cannot completely eliminate risk, but it can control or ... Read Full Answer >>
  6. How does the law of diminishing returns affect marginal revenue?

    The law of diminishing returns is better thought of as the law of increasing opportunity costs. The law states that -- if ... Read Full Answer >>
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  3. Retirement

    Economic Indicators To Know

    The economy has a large impact on the market. Learn how to interpret the most important reports.
  4. Economics

    What Is Supply?

    Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics.
  5. Economics

    What is a Management Buyout?

    A management buyout, or MBO, is a transaction where a company's management team purchases the assets and operations of the business they manage.
  6. Economics

    What Part of the Money Supply is M2?

    M2 is the part of the money supply economists use to analyze and predict inflation.
  7. Economics

    Modified Internal Rate of Return (MIRR)

    Modified internal rate of return (MIRR) is a variant of the more traditional internal rate of return calculation.
  8. Economics

    Explaining Cash On Delivery

    Cash on delivery, also referred to as COD, is a method of shipping goods to buyers who do not have credit terms with the seller.
  9. Economics

    Understanding Structural Unemployment

    Structural unemployment is an economic miss-match where workers fail to find jobs and employers with available jobs fail to find workers.
  10. Credit & Loans

    What's a Revolving Line of Credit?

    A revolving line of credit is an arrangement made between a company or an individual and a bank to borrow money on a short-term basis.

You May Also Like

Hot Definitions
  1. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  2. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  3. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  4. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  5. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center