When is Economic Efficiency achieved?

Economic efficiency is achieved when marginal benefit equals marginal cost. This condition indicates that the resources in an economy are being used in the most effective way possible. In this scenario, the value that consumers place on a good or service (the marginal benefit) is equal to the cost of producing one more unit of that good or service (the marginal cost).

When this balance is achieved, it means that there is no way to reallocate resources to make someone better off without making someone else worse off, which is a fundamental concept in economics known as Pareto efficiency. At this point, the allocation of resources results in a maximum total surplus, which includes both consumer and producer surplus, hence optimizing overall economic efficiency.

While maximizing consumer surplus or minimizing producer surplus might contribute to economic considerations, they do not, by themselves, guarantee overall economic efficiency. The equality of marginal benefit and marginal cost is the crucial condition for achieving that efficiency.