[thaumasiotes]

> For economists, efficiency is simply that goods should be created where the surroundings are best suited for it - first described by David Ricardo in the 19th century. E.g. Cotton should be planted where there is the most fertile soil etc.

This seems slightly off to me. Cotton can be grown more efficiently (in the usual sense of less cost per unit return) in some climates than others. But the economy as a whole may be more efficient if cotton is grown exclusively in subpar-for-cotton areas; perhaps the ideal-for-cotton areas are needed for another crop.

As I understand it, "efficiency" in economics will refer to one of two ideas:

1. Small deadweight losses. The smaller they are, the more efficient the economy is.

2. Pareto efficiency. (That is, the economy is efficient, in this sense, if there is no reallocation of resources that makes somebody better off without making anyone worse off.)

[rahimnathwani]

"This seems slightly off to me."

You are correct. GP gave an example of absolute advantage. But Ricardo is more famous for demonstrating that comparative advantage can be enough to make trade worthwhile.

Your field may be 1/3 as efficient at making cotton than mine. But perhaps it's 1/5 as efficient as mine in growing olives. So, assuming we both want cotton and olives, it would be worth you growing more cotton, and swapping for some of my olives. I get a little more cotton than I would have alone. And you get a few more olives than you would have.