What is Efficiency?
- Efficiency is a quantifiable concept, it is the ratio of useful output to total input.
- Improving efficiency allows us to produce more output from the same input, and vice versa.
- This is vital for sustainable economies and economies in general, as in Capitalism economies are expected to continuously grow.
- This growth can only be achieved through improving efficiency or acquiring more resources.
- However, resources are scarce, thus improving efficiency is a necessity.
Example:
- Two farmers both have 3 ares of land.
- One farmer turns all 3 ares of their land into fields, but uses rudimentary tools for harvesting.
- The other farmer only turns 1 are of their land into a field, but purchases a combine harvester, allowing them to harvest and replant 3 times quicker than the first farmer.
- Both farmers have the same output while one uses much less land.
- The second farmer can then give back to nature by using the extra land for reforestation, etc.
Allocative Efficiency
- Allocative efficiency refers to making the best possible use of scarce resources, and leading to as little waste as possible.
- Allocative efficiency isn't only achieved through innovation, although it is one of the most significant ways to improve efficiency.
- Improvements in work regulations and laws can also improve efficiency.
- For example a reduction in working hours while reducing breaks can lead to more output due to overall longer periods of focused working.