A market exhibits economic efficiency if three things are true.

1. Marginal value of all buyers is equal.

2. Marginal cost of all producers is equal.

3. Marginal value equals marginal cost.

Conditions 1 and 2 are about the market allocating the output to the buyers who value it most highly (same marginal values) and allocating production to the lowest cost producers (same marginal cost). Condition 3 is about output level efficiency. If MV > MC then increasing output creates extra surplus because there are buyers who value an additional unit of output at more than it costs to produce it. Likewise, if MV