Conventional understanding of Economic Efficiency ~ pare village

Most economists use the Pareto efficiency, as the destination of their efficiency. According to the size of social welfare, a situation is optimal only if no individual can be made better without making others worse. Ideal conditions this can only be achieved if the four criteria are met. The average marginal substitution in consumption should be identical for all consumers (no consumer can be made better without making consumers more than the other bad). Average production in the transformation should be identical for all products (is impossible to increase production of goods every good without reducing the production of goods other) resources, marginal cost must be equal to marginal revenue product for all of the production process (marginal physical product of a factors must be the same with all the companies that produce goods a) Average marginal consumption should be substituted with the average marginal transformation in production. (the production process must be in accordance with the desire consumers) There are a number of conditions which, most economists agree, can not efficiently include: the structure of the market that are not perfectly (such as monopoly, monopsoni, oligopoli, oligopsoni, and competition monopolistik) is not efficient allocation of factors ( see the basic theory of production), and the failure of market externalities (see also the social cost), price discrimination (see also skimming price), penuruanan cost the average long-term (see natural monopoly), and several types of tax rates. To determine whether an activity is to propel the economic direction of Pareto efficiency, the two test compensation already developed, every change in the generally make some people better while other people are not worse, then the test is to ask what will happen if the winners to change the compensation to the loser. Using the criteria Kaldor an activity will contribute to Pareto optimal if the maximum number of winners ready to pay more than the minimum number of ready-received by the losers.
Under the criteria Hick, an activity will contribute to Pareto optimal if the maximum number of losers is prepared to offer to the winners in order to prevent changes that are less than the minimum number of winners is prepared to accept a bribe to cancel the change. Test to see Hick compensation from the perspective of losers, while the test to see Kaldor compensation from the perspective winner. If both conditions can satisfy the loser and the winner of both the victors and losers will agree that the proposed activity will propel the economy toward Pareto optimal. This is known as the Kaldor-Hicks efficiency criteria or Scitovsky.

from :msuyanto.com