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Economic efficiency requires optimality in the following decisions:
  • how to allocate resources; 
  • what to produce;
  • choice of  technology; 
  • how to distribute goods.


Optimality means the following: Allocation of labor and capital, choice of products and technology, as well as distribution of goods must be done in such a way, that it would be impossible to increase welfare of one person without reducing welfare of some other person
If it is possible to reallocate resources, change technology or modify distribution of goods in such a way that welfare of both persons can be increased or welfare of one can be increased without reducing welfare of the other, than the original state of the economy was not efficient.

This type of efficiency is also called Pareto efficiency or Pareto optimality .







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