Pareto Efficiency

… a core concept in Economic Analysis and Atlas102

Concept description

The Economist defines Pareto efficiency as a situation in which nobody can be made better off without making somebody else worse off.

The Economist goes on to say:

“Named after Vilfredo Pareto (1843–1923), an Italian economist. If an economy’s resources are being used inefficiently, it ought to be possible to make somebody better off without anybody else becoming worse off. In reality, change often produces losers as well as winners. Pareto efficiency does not help judge whether this sort of change is economically good or bad.”

Wikipedia (reference below) says:

“The Pareto frontier is the set of all Pareto efficient allocations, conventionally shown graphically. … A production-possibility frontier is an example of a Pareto-efficient frontier. [In the image above, the] connected line of red points represents Pareto optimal choices of production. Points off the frontier, such as N and K, are not Pareto efficient. …

“A Pareto improvement is a change to a different allocation that makes at least one individual or preference criterion better off without making any other individual or preference criterion worse off, given a certain initial allocation of goods among a set of individuals. An allocation is defined as “Pareto efficient” or “Pareto optimal” when no further Pareto improvements can be made.

“Pareto efficiency is a minimal notion of efficiency and does not necessarily result in a socially desirable distribution of resources: it makes no statement about equality, or the overall well-being of a society.”

Atlas topic, subject, and course

Trade (core topic) in Economic Analysis and Atlas102 Economic Analysis.

Source

The Economist, Pareto efficiency, Economics A-Z, at http://www.economist.com/economics-a-to-z/p#node-21529575, accessed 11 May 2016.

Wikipedia, Pareto efficiency, https://en.wikipedia.org/wiki/Pareto_efficiency, accessed 1 June 2017.

Page created by: Ian Clark, last modified 1 June 2017.

Image: Wikipedia, Pareto efficiency, https://en.wikipedia.org/wiki/Pareto_efficiency, accessed 1 June 2017.