What is meant by economic efficiency?

Economic efficiency refers to the allocation of resources in a way that maximizes total surplus, which is the sum of consumer surplus and producer surplus. When resources are allocated efficiently, it means that they are being used in a way that creates the highest possible level of welfare for society. This occurs when goods and services are produced at the lowest cost and distributed to those who value them the most, ensuring that both consumer and producer incentives are aligned.

In essence, achieving economic efficiency leads to the optimal distribution of resources, where no one can be made better off without making someone else worse off, a concept known as Pareto efficiency. This principle highlights the importance of correctly pricing goods and services to reflect their true value, which allows for an effective market operation where supply meets demand effectively.

The other options focus on aspects that may contribute to economic goals but do not capture the core idea of efficiency in the allocation of resources and welfare maximization. For instance, maximizing government revenue does not necessarily lead to an efficient outcome if it distorts market signals or leads to misallocation. Ensuring all firms are profitable does not guarantee that resources are used effectively, as it may allow for inefficiencies to persist. Minimizing unemployment is important for economic health but does not directly