What does economic efficiency refer to in economic terms?

Economic efficiency is defined as the optimal allocation of resources where it is impossible to make one individual better off without making at least one individual worse off. This concept is closely associated with maximizing total societal welfare, as it emphasizes the most effective use of resources to achieve the greatest benefit for society as a whole.

When resources are allocated efficiently, they produce the highest possible output, satisfying consumer needs and wants to the fullest extent without waste or inefficiency. This idea also encompasses both productive efficiency, where goods are produced at the lowest cost, and allocative efficiency, where resources are distributed according to consumer preferences and utility.

While minimizing government intervention, balancing exports and imports, and reducing unemployment rates may contribute to a healthier economy, they are not definitive measures of economic efficiency. These aspects can exist independently of economic efficiency or can sometimes even conflict with it. Thus, maximizing total societal welfare is the most encompassing and precise reflection of what economic efficiency entails.