The Concept of Economic Efficiency 25 



workers with different transfer prices, and the wage rate would 

 have to equal the transfer price of the marginal worker to retain 

 in the occupation the number the community prefers. 



In summary, in a perfectly competitive labor market there is only 

 one wage rate for any particular kind of work, and individual 

 workers do not influence the rate. The individual worker is 

 assumed to vary the amount of work offered at given wage rates to 

 determine the amount of his income. Being free to do this, taking 

 account of his marginal valuation of income and leisure, he can 

 reach his preferred position. If there is a wage rate that will elicit 

 precisely the amount of work of a particular kind preferred by the 

 community, such a single rate will distribute work efficiently among 

 workers in that particular occupation. Furthermore, if there is 

 freedom of occupational choice, workers will specialize at tasks 

 which reflect their preferences as given by relative earnings and the 

 burdens of work in the alternatives open to them. And finally, 

 competitive market forces establish the relationship of earnings 

 among occupations by adjustments in the relative rates of hire in 

 order to allocate the total work among occupations consistent with 

 the consumers' preferences. 



MARKET ADJUSTMENTS BY ENTERPRISES 



Our explanation of the distribution of products and allocation 

 of work by the market mechanism took the individual as the focal 

 point, because to meet conditions consistent with individuals' 

 preferences is a requirement of economic efficiency. In modern 

 industrial societies, however, there are many stages in the process 

 of transforming resources into final goods. At these, action is taken 

 by enterprises that occupy a place between the individual in his 

 role of seller of personal services and his role as buyer of consumer 

 goods. The conditions which define efficiency in such enterprises, 

 however, are considerably more complex than in the case of 

 allocating work among individuals or distributing final products. 

 Efficiency in this section involves two considerations — given the 

 resources at the disposal of the community, output must be at a 

 maximum, subject to conformance with consumers' preferences. 



To describe the efficiency conditions that must be met by enter- 

 prises, we begin with some simplifying assumptions. First, we 

 assume that the capital stock is fixed — that is, the plant and equip- 



