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There are 3 main reasons a small engine is more fuel efficient than a larger engine: 1. Small engines are lighter. Less weight is good for fuel economy. 2. At a given engine speed & load the throttle valve is more open on a small engine than on a large engine. This means less (wasteful) work is done pulling the gas into the engine to provide a particular amount of power at the crank shaft. Incidentally, this is one reason diesel is comparatively efficient next to gasoline engines - a diesel vehicle has no throttle valve. 3. The surface area of contacting parts is smaller in a smaller engine (there are less pistons) and so there are less frictional losses. Here are some caveats: If the smaller engine is made to produce as much power as the larger engine by turbocharging then at peak power the smaller turbocharged engine is less efficient than the larger non-turbocharged vehicle due to losses across the turbo. The throttle valve is completely open in this case (Wide Open Throttle) and so both vehicles have minimal loss here; frictional losses are slightly higher with the larger engine but this does not offset the losses across the turbocharger of the smaller engine. However, most of a vehicle's time is not spent at peak power and, for more moderate driving, the increased efficiencies due to less weight, less friction & less loss across the throttle valve more than offset the additional loss across the turbo. Larger engines generally are capable of producing more torque at a given engine speed. This means they can have taller gearing and so, for a given vehicle speed / load, can run at a lower engine speed than a smaller engine. Running at lower engine speeds to produce a particular power output is benifical because friction losses are lower (they are proportional to engine speed) and throttle losses are lower. I'm not sure what this means in numerical terms but at the end of the day the OEMs are working directionally towards smaller rather than larger engines and so I think it is fair to say that the increased torque / higher geared / lower engine speed effect does not offset all the other factors.

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Q: Why is a small engine size more efficient?
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