Economic efficiency
where scarce resources are used in the most efficient way to produce maximum output.
Productive efficiency
when a firm is producing at the lowest possible cost.
Allocative efficiency
where price is equal to marginal cost; firms are producing those goods and services most wanted by customers
Pareto optimality
where it is impossible to make someone better off without making someone else worse off
Dynamic efficiency
a form of efficiency that benefits a firm over a long period of time.
Product innovation
small scale and subtle changes to the characteristics of the goods and services produced
Process innovation
changes to the way in which production takes place, changes in business models/pricing strategies
Pareto improvement
occurs when a reallocation of resources makes at least one person better off without making no-one worse off
Market failure
occurs when a market fails at delivering economic efficiency, more specifically when it fails to make an optimum use of scarce resources.
Externality
it exists when the actions of producers, consumers, or governments produce side effects that affect third parties who are not involved in the action.