Efficiency - Explanation and examples

How to get the most out of anything.


What is efficiency?

If you’re thinking about helping the environment, you probably want everything in your home to be energy efficient. What does ‘energy efficiency’ mean? If we take the lights in your home as an example, you’ll want the energy you supply each bulb to turn into light (that's the goal!) rather than being wasted as heat (not the goal!).

In general, we say something is efficient when it maximises outputs with given inputs. In other words, it’s the ability to do something well and without waste. Often we try to measure efficiency levels, such as how energy efficient our light bulbs are or how efficient a business is at producing a product.

It’s easy to confuse efficiency with effectiveness. If efficiency is how well you do a given thing, effectiveness is more about how well you produce a desired result. For example, a charity could be very efficient at turning donations into medicines with little overhead, but could be very ineffective at achieving its goal of improving health if the medicines don’t work well.

Examples of efficiency

Economic efficiency

So how can you use the concept of efficiency? When you apply it to the economy, we call an economic state ‘economically efficient’ when we use every resource to serve everyone’s interest in the best way while minimising waste. Wasted resources means inefficiency, since we could have achieved our desired outputs with less input, or produced more output with the input we had.

Because we have limited resources, we’ve got to allocate what we do have in ways that give the most benefit. The ideal state of economic efficiency would be where the welfare of the population is at the highest level of welfare possible based on the resources available.

At peak economic efficiency, you can’t improve the welfare of one person without lowering the welfare of another. Since there’s no waste at peak economic efficiency, there are no ‘free’ gains you can make from making better use of wasted resources.

Productivity improving techniques

Let’s apply the concept of efficiency to your work-routine. Imagine that you normally take  4 hours to read an article, because you keep on getting distracted by text messages. Here, one of your inputs - time - is being wasted in producing your desired output, the amount of reading done. If you use productivity-improving techniques, such as the pomodoro technique, you could get more reading done in the same amount of time. and become more efficient at reading. You can get more for less out of your time - and really anything! - if you improve your efficiency.

Also check out

  1. Pareto efficiency (Wikipedia)  https://en.wikipedia.org/wiki/Pareto_efficiency

  2. Efficiency (Investopedia) https://www.investopedia.com/terms/e/efficiency.asp

Get one concept every week in your inbox