For markets to generate the greatest benefit and function in the most efficient manner they must be perfectly competitive.
Economic efficiency means an economic state in order to best serve each person or organization while minimizing waste and inefficiency.
In a competitive economy, any changes that favor one entity will harm all others. Both the fixed and variable production input costs are kept as low as is practical.
Several terms that describe various levels of economic efficiency include distributive, productive, allocative, and Pareto efficiency. In essence, economic efficiency is an idealized limit that can never be reached.
Instead, economists look at the amount of loss, also referred to as waste, between ideal efficiency and reality to assess how well an economy functions.
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