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. Raw Materials

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

    A process by which business decisions are analyzed. The benefits ...
  3. Efficiency

    A level of performance that describes a process that uses the ...
  4. Normal Profit

    When economic profit is equal to zero; this occurs when the difference ...
  5. Economics

    A social science that studies how individuals, governments, firms ...
  6. Implicit Cost

    A cost that is represented by lost opportunity in the use of ...
Related Articles
  1. Economics Basics
    Economics

    Economics Basics

  2. Explaining The World Through Macroeconomic ...
    Options & Futures

    Explaining The World Through Macroeconomic ...

  3. Economic Indicators To Know
    Retirement

    Economic Indicators To Know

  4. Main Characteristics of Capitalist Economies
    Economics

    Main Characteristics of Capitalist Economies

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center