8.5.2 Pareto optimal

8.5.2 Pareto optimal

The Italian economist Wilfredo Pareto stated that any change that makes at least one person better off without making anybody else worse off is an improvement in social welfare. Conversely, a change that makes no one better off and at least one worse - off is a decrease in social welfare. This is called pareto’s optimality. A situation in which it is impossible to make any one better off without making some one worse-off is said to be pareto optimal or pareto efficient.

The marginal conditions for a pareto optimal or pareto efficient distribution of commodities among consumers requires that the marginal rate of substitution between two goods be the same for all the consumers.

 

Last modified: Saturday, 24 December 2011, 7:10 AM