Short answers, pulled from the story.
Economic efficiency in microeconomics refers to two related concepts: allocative (Pareto) efficiency, where any change helping one person harms another, and productive efficiency, where goods are produced at the lowest possible average total cost. A market can satisfy one condition without satisfying the other.
Allocative efficiency requires that the price of a product equals the marginal value consumers place on it and equals marginal cost. Productive efficiency requires that goods are supplied at the minimum point of the average total cost curve. Both conditions hold in the long-run equilibrium of perfect competition, but they are not equivalent.
The first fundamental welfare theorem states that any perfectly competitive market equilibrium is Pareto efficient. This result only holds in the absence of market imperfections, and Pareto efficiency itself makes no statement about equality or the overall well-being of a society.
The theory of the second best states that if there is an unavoidable market distortion in one sector, a move toward greater market perfection in another sector may actually decrease overall economic efficiency. There is no clear theoretical basis for assuming that removing a single market distortion will always increase efficiency.
Microeconomic reform is the implementation of policies that aim to reduce economic distortions through deregulation and move an economy toward efficiency. Its theoretical limits are set by the theory of the second best, which cautions that piecemeal reforms can reduce efficiency when other distortions remain.
Classical liberalism, associated with classical economics, neoclassical economics, and the Austrian school, argues that reducing government involvement removes distortions and improves efficiency. The Keynesian tradition, prominent in the Anglosphere and linked to institutional economics, holds that government involvement at the macroeconomic level is necessary to counteract the economic cycle and correct market failures.