Efficiency

While efficiency is indicated by equality between demand price and supply price for a given market, unfortunately there are no clear-cut comprehensive indicators for attaining this efficiency goal. While it is possible, in theory, to pinpoint what is needed for efficiency, the complexity of the economy makes the task difficult to accomplish in practice.

Equity

Equity means income and wealth are distributed according to a standard of fairness. But what is the fairness standard? It could be equality. Or it could be the productive value of resources. Or it could be need. Because justifications for each are easily identified, it is also easy to see that standards for equity moves deeply into the realm of normative economics.

Tradeoffs

However, the pursuit of one goal often restricts attainment of the others. For example, policies that promote efficiency might cause inequities or policies that improve equity might cause inefficiency. Microeconomic goals are also often in conflict with the macroeconomic goals of full employment, stability, and growth.

Consider a hypothetical situation, depicted by the hypothetical Republic of Northwest Queoldiolia, in which the pursuit of one goal limits achieving another goal.

• Efficiency and Equity: The Congress of Northwest Queoldiolia seeks to address historical ethnic inequities by establishing an affirmative action program. Opportunities for ethnic minorities provided by the program enables more equal distributions of income and wealth, but efficiency is prevented because some of the employed workers are less skilled at their jobs.

Policies and Politics

In a mixed economy, the pursuit of these goals is largely directed by governments. This, of course, brings into play the wonderful world of politics and never-ending debates over which of these two microeconomic goals is most worth pursuing with economic policies.

As the discussion turns to politics and policies, two viewpoints tend to emerge--liberal and conservative. Generalities are, of course, fraught with exceptions. However, with that caution in mind, note that each of the two political views have historically placed greater emphasis on the attainment of some goals over others.