Question

If efficiency is our goal, how do we know if our economy is running efficiently or not? What do you think about our current economy? Is it running efficiently now?

Answer 1

There are two types of efficiency in the market- Production efficiency and Economic efficiency. Economic efficiency is the idea that it is impossible to improve the situation of one party without imposing a cost on another party. This is the case of Pareto efficiency. Production efficiency in the economy occurs when the equilibrium output is supplied at a minimum average cost of production. Thus, both the types of efficiency are different in the economy.

The current U.S. economy is running efficiently and has has improved significantly especially after the great Recession of 2008. The economy become inefficient during that time but it has recovered from it and is currently operating very close to the potential level of output and is on the boundary point of the Production Possibility Frontier. The unemployment rate is also close to the natural level of unemployment and thus the economy is running efficiently.

Thus, all the current indicators of the economy depict that the economy is running efficiently now.