The term inefficiency has several meanings depending on the context in which its used:

*Allocative inefficiency - Allocative efficiency theory says that the distribution of resources between alternatives does not fit with consumer taste (perceptions of costs and benefits). For example, a company may have the lowest costs in "productive" terms, but the result may be inefficient in allocative terms because the "true" or social cost exceeds the price that consumers are willing to pay for an extra unit of the product. This is true, for example, if the firm produces pollution (see also external cost). Consumers would prefer that the firm and its competitors produce less of the product and charge a higher price, to internalize the external cost.

*Distributive Inefficiency - refers to the inefficient distribution of income and wealth within a society. Decreasing marginal utilities of wealth suggests that more egalitarian distributions of wealth are more efficient than unegalitarian distributions. Distributive inefficiency is often associated with economic inequality.

*Economic inefficiency - refers to a situation where "we could be doing a better job," i.e., attaining our goals at lower cost. It is the opposite of economic efficiency. In the latter case, there is no way to do a better job, given the available resources and technology.

*Keynesian inefficiency - might be defined as incomplete use of resources (labor, capital goods, natural resources, etc.) because of inadequate aggregate demand. We are not attaining potential output, while suffering from cyclical unemployment. We could do a better job if we applied deficit spending or expansive monetary policy.

*Pareto inefficiency - Pareto efficiency theory says that one person could be made better off without making anyone else worse off. In practice, this criterion is difficult to apply in a constantly-changing world, so many emphasize Kaldor-Hicks efficiency and inefficiency: a situation is inefficient if someone can be made better off even after compensating those made worse off -- even if the lonely hour of compensation never comes.

*Productive inefficiency - says that we could produce the given output at a lower cost -- or could produce more output for given cost. For example, a company that is inefficient will have higher operating costs and will be at a competitive disadvantage (or have lower profits than other firms in the market).

*Resource-market inefficiency - refers to barriers that prevent full adjustment of resource markets, so that resources are either unused or misused. For example, structural unemployment results from barriers of mobility in labor markets which prevent workers from moving to places and occupations where there are job vacancies. Thus, unemployed workers can co-exist with unfilled job vacancies.

*X-inefficiency - refers to inefficiency in the "black box" of production, connecting inputs to outputs. This type of inefficiency says that we could be organizing people or production processes more effectively. Often problems of "morale" or "bureaucratic inertia" cause X-inefficiency.

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Look at other dictionaries:

  • Inefficiency — In ef*fi cien*cy, n. The quality of being inefficient; lack of power or energy sufficient for the desired effect; inefficacy; incapacity; as, he was discharged from his position for inefficiency. [1913 Webster] …   The Collaborative International Dictionary of English

  • inefficiency — index detriment, disability (physical inability), impotence, impuissance, inability, incapacity, incompetence, inefficacy …   Law dictionary

  • inefficiency — inefficient in‧ef‧fi‧cient [ˌɪnˈfɪʆnt◂] adjective producing goods or working in a way that uses more time, money etc than necessary: • the assumption that the public sector is wasteful, inefficient and unproductive inefficiently adverb… …   Financial and business terms

  • inefficiency — UK [ˌɪnɪˈfɪʃ(ə)nsɪ] / US noun [countable/uncountable] Word forms inefficiency : singular inefficiency plural inefficiencies the inefficient way in which someone does something How can we minimize inefficiency and wasted time? …   English dictionary

  • inefficiency — noun ADJECTIVE ▪ gross ▪ inherent ▪ bureaucratic, government ▪ economic, market VERB + INEFFICIENCY …   Collocations dictionary

  • inefficiency — /in i fish euhn see/, n., pl. inefficiencies for 2. 1. the quality or condition of being inefficient; lack of efficiency. 2. an instance of inefficiency: This work is riddled with inefficiencies. [1740 50; INEFFICI(ENT) + ENCY] * * * …   Universalium

  • inefficiency — in•ef•fi•cien•cy [[t]ˌɪn ɪˈfɪʃ ən si[/t]] n. pl. cies 1) the quality or condition of being inefficient 2) an instance of inefficiency • Etymology: 1740–50 …   From formal English to slang

  • inefficiency — inefficient ► ADJECTIVE ▪ not achieving maximum productivity; failing to make the best use of time or resources. DERIVATIVES inefficiency noun inefficiently adverb …   English terms dictionary

  • inefficiency — noun (plural cies) Date: 1749 1. the quality or state of being inefficient 2. something that is inefficient …   New Collegiate Dictionary

  • inefficiency — noun Lack of efficiency or effectiveness …   Wiktionary

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