Economic efficiency is a term typically used in microeconomics when discussing product. Production of a unit of good is considered to be economically efficient when that unit of good is produced at the lowest possible cost. Economic efficiency occurs when the cost of producing a given output is as low as possible. It depends on the prices of the factors of production. The term economic efficiency refers to the process by which resources are maximized to generate more productive value than they use. For example, a country would be considered economically efficient if it uses its resources to provide products and services for its citizens that exceed the value of the resources themselves. Economic efficiency is often based on ideas of value, which is a largely subjective idea. For example, when referring to a system that uses more or less than it needs, or produces more or less than it should, the terms “more” and “less” are relative to the overall value placed on certain goods and services. For this reason, efficiency is not only measured by the physical products produced or resources used, but by the value of the ends in proportion to the value of the means.

Competition causes businesses to try new ways to attract customers by lowering prices, improving quality and developing new products and services. There is no possibility of marketing to exist without competition. Atleast not in its true sense because the need for marketing the product goes away. Competition is good for many reasons. First, when two or more companies are competing in a market, they will be forced to keep prices under control, and also they will need to make a better product in order to compete.Competitive markets exist when there is genuine choice for consumers in terms of who supplies the goods and services they demand. It is characterised by various forms of price and non-price competition between sellers who are bidding to increase or protect their market share.

Free-market competition will ensure that the allocation of resources is economically efficient. Although the buyers and sellers act selfishly, the net outcome is at least as good as the best efforts of the most enlightened and well-informed central planner. This applies to markets for goods and services as well as capital. In a competitive capital market, all buyers purchase up to the quantity where the marginal benefit equals the price of capital, and all sellers supply up to the quantity where the marginal cost equals the price. Buyers and sellers face the same price; hence, the allocation of capital is economically efficient

Competitive markets are seen beneficial for consumers and the economy as a whole?

Vigorous competition between firms is the lifeblood of strong and effective markets. Competition helps consumers get a good deal. It encourages firms to innovate by reducing slack, putting downward pressure on costs and providing incentives for the efficient organisation of production. As such, competition is a central driver for productivity growth in the economy.


Firms compete for market share and the demand from consumers in lots of ways. As there is an important distinction between price competition and non-price competition. Price competition can involve discounting the price of a product to increase demand and Non-price competition focuses on other strategies for increasing market share. Non-price competition has become important in the battle of sales in many aspects such as, Traditional advertising or marketing, store loyalty cards, Banking and other Services, in-store chemists and post offices, home delivery systems, discounted petrol at hypermarkets, extension of opening hours (24 hour shopping),innovative use of technology for shoppers including self-scanning and internet shopping services.

Purely competitive markets are good for society because it forces firms to achieve maximum efficiency productive and allocative efficiency. Firms are forced to produce at the minimum average total cost in the long run. Consumers benefit from productive efficiency by paying the lowest product price possible under the prevailing technology and cost conditions. Therefore Purely Competitive firms are the most productively efficient. Competition, or capitalism, through freedom of entry and exit ensures that production occurs at the lowest possible average cost and that there is no waste in production. Competition ensures production occurs at a minimum cost or other businesses will be able to produce and sell the product for cheaper. Inefficient businesses will be beat by their productively efficient competitors.

By increasing the market competition there are lot of gains for a efficient company such as, lower prices for consumers, a greater discipline on producers/suppliers to keep their costs down, improvements in technology – with positive effects on production methods and costs, a greater variety of products (giving more choice),a faster pace of invention and innovation, improvements to the quality of service for consumers, better information for consumers allowing people to make more informed choices

The overall impact of increased competition is an improvement in economic welfare.


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