Equity vs efficiency in economics. What does it means and what are the differences between equity and efficiency in the microeconomics? Continue reading to find out.

Equity in Economics

Equity is defined as a scenario whereby the economic resources is distributed fairly among its people by the society. (Buck 2008) As a matter of fact, each society has their own interpretation on what is equitable. In other words, most economists believe that equity can be see as how fairly opportunity and income are allocated among different segments within the society. (Economics Online 2019) With this said, each society will have a different set of policy which they will use to promote equity. (International Monetary Fund 1999) According to the essay written by Economics Online, inequality can be measured by observing the Lorenz curve and the Gini index. (Economics Online 2019)

Surprisingly, policies made by the government to promote equity had directly and indirectly help reduce poverty rate. Personal income tax is one of the policies that promote equity as individuals with a higher annual income are required to pay a higher percentage of income taxes as compared to individuals with a lower annual income. By doing so, it enables the distribution of income to become more equal. In addition, the allowance given to the Welfare Department is collected through the taxes paid by the citizens which the allowance will then be distributed out to those in need. (Mr. Prakash 2013)

Efficiency in Economics

Efficiency can be defined as a scenario whereby the society obtains maximum outputs from scarcity. (Buck 2008) In other words, goods will be produced with the lowest amount of resources when the economy is economically efficient. (Chappelow 2019) With this said, the presence of economic efficiency enables the society to fulfill more needs and wants as compared to the presence of economic inefficiency. (Buck 2008) Based on an essay written by Tejvan Pettinger, production efficiency, allocation efficiency, distributive efficiency, and social efficiency are some of the types of economic efficiency. (Pettinger 2017)

According to the Prime Minister’s Office of Malaysia, the Eleventh Malaysia Plan executed by the government involves the attempt to enhance market efficiency. (Prime Minister's Office of Malaysia 2019) Within the Eleventh Malaysia Plan, the government had taken reasonable actions to enhance economic efficiency of Malaysia. In terms of SMEs, the government had encouraged SMEs to upgrade their value chain by creating higher value-added goods and services. Also, large emphasis will be given to enhance capacity building, speed up innovation, technological adoption among SMEs and local corporations. The government believes that these actions will boost the productivity of the country. (Prime Minister's Office of Malaysia 2019)

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