Carefully explain what economists mean by efficiency. Using examples Essay - 1

Carefully explain what economists mean by efficiency. Using examples from the real world where appropriate, explain why economists consider Monopolies to be i - Essay Example Efficiency can never be complete, and it always needs to be measured in relation to certain criteria. For economic efficiency the basic criterion is value, so that changes that tend to increase value are deemed efficient and changes that decrease it are thought to be inefficient. However, a state of affairs that can be qualified as economically efficient need not necessarily remain efficient when viewed from the point of view of other criteria. So, value is not only a relative quality but a subjective one as well because something has value only if there are those who want it. In this situation a question arises as to how can one be sure that value is maximised? One of the traditional answers of economists to this questions is contained in what is known as Pareto optimality, named so after Italian economist Vilfredo Pareto who postulated that if a change can leave somebody better off than before, and at the same time will not make situation of others worse, then the initial situation was not the one of the highest possible value because an improvement could yet be introduced (Wikipedia, 2006). And when the highest possible value is obtained, then any change that may improve one`s condition must inevitably be harmful for somebody else. This situation was defined by Pareto as allocative efficiency. Economists are concerned about economic efficiency for two reasons. The positive reason of their interest stems from the fact that people are seeking value, and this search can take place in any social circumstances so that on condition that enough money can be obtained people are ready to go for immoral, risky, and criminal occupations. From the theoretical point of view we can attribute this quest for value to the mentioned striving to maximise utility and profit, and when situations emerge that an unexploited value exists which is possible but not yet captured economists usually need to provide an account of why no ways are found to utilise this value. Thus,