Pareto efficiency, or Pareto optimality, is an economic state where resources cannot be reallocated to make one individual better off without making at least one individual worse off. Pareto efficiency implies that resources are allocated in the most economically efficient manner, but does not imply equality or fairness. An economy is said to be in a Pareto optimum state when no economic changes can make one individual better off without making at least one other individual worse off. To simplify analysis and discussion the model for general equilibrium uses the two person, two goods and two resources (or 2 X 2 X 2 model). The investigation is done in three steps: • Consumption efficiency • Production efficiency • A combination of Consumption and Production efficiencies.
Pareto efficiency, or Pareto optimality, is an economic state where resources cannot
be reallocated to make one individual better off without making at least one
individual worse off. Pareto efficiency implies that resources are allocated in the
most economically efficient manner, but does not imply equality or fairness. An
economy is said to be in a Pareto optimum state when no economic changes can
make one individual better off without making at least one other individual worse
off.
To simplify analysis and discussion the model for general equilibrium uses the two
person, two goods and two resources (or 2 X 2 X 2 model). The investigation is done
in three steps:
• Consumption efficiency
• Production efficiency
• A combination of Consumption and Production efficiencies.
Critically analyze the concept of Pareto efficiency. Use relevant theory and diagrams to
support your analysis.
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