Final answer:
Economic efficiency provides a way of characterizing the efficiency in a market by measuring productive and allocative efficiency. In a perfectly competitive market, both types of efficiency are achieved. Productive efficiency refers to producing goods and services at the lowest possible cost, while allocative efficiency refers to distributing resources to meet consumers' wants and needs in the optimal way.
Step-by-step explanation:
The concept of economic efficiency provides a way of characterizing the economic efficiency in a market. Economists define economic efficiency as a situation where it is impossible to improve the situation of one party without imposing a cost on another. In other words, if a situation is considered efficient, it means that all available resources are being used to maximize benefits without waste.
Productive efficiency measures how well resources are utilized in the production process. It occurs when goods and services are produced at the lowest possible cost. Allocative efficiency, on the other hand, refers to the distribution of resources to meet the wants and needs of consumers in the most optimal way.
In a perfectly competitive market, both productive and allocative efficiency are achieved in the long run. Perfect competition ensures that resources are allocated efficiently because, in this market structure, price equals marginal cost. This means that resources are distributed in such a way that the last unit produced is valued the same as the cost of producing it. Furthermore, producers in a perfectly competitive market are incentivized to achieve productive efficiency to minimize costs in order to remain competitive.