The Competitive Equilibrium and Allocative Efficiency
At the competitive equilibrium, the value society places on a good is equivalent to the value of the resources given up to produce it (marginal benefit equals marginal cost). By definition, this ensures allocative efficiency (the additional value society places on another unit of the good is equal to what society must give up in resources to produce it).
Note that microeconomic analysis does NOT assume additive utility nor does it assume any interpersonal utility tradeoffs. Efficiency therefore refers to the absence of Pareto improvements. It does not in any way opine on the fairness of the allocation (in the sense of distributive justice or equity). An 'efficient' equilibrium could be one where one player has all the goods and other players have none (in an extreme example). This is efficient in the sense that one may not be able to find a Pareto improvement - which makes all players (including the one with everything in this case) better off (for a strict Pareto improvement), or not worse off.
Read more about this topic: Competitive Equilibrium
Famous quotes containing the words competitive, equilibrium and/or efficiency:
“Developing the muscles of the soul demands no competitive spirit, no killer instinct, although it may erect pain barriers that the spiritual athlete must crash through.”
—Germaine Greer (b. 1939)
“That doctrine [of peace at any price] has done more mischief than any I can well recall that have been afloat in this country. It has occasioned more wars than any of the most ruthless conquerors. It has disturbed and nearly destroyed that political equilibrium so necessary to the liberties and the welfare of the world.”
—Benjamin Disraeli (1804–1881)
““Never hug and kiss your children! Mother love may make your children’s infancy unhappy and prevent them from pursuing a career or getting married!” That’s total hogwash, of course. But it shows on extreme example of what state-of-the-art “scientific” parenting was supposed to be in early twentieth-century America. After all, that was the heyday of efficiency experts, time-and-motion studies, and the like.”
—Lawrence Kutner (20th century)