PARETO OPTIMUM

Posted on February 25, 2019 by appleb

Q. 2016 JULY II
The statement that “no one can be made better off without making someone worse off” describes which of the following?
A. Pareto Optimum
B. Nash Equilibrium
C. Low-level Equilibrium Trap
D. Cournot’s Equilibrium
ANS: (A)
Introduced by Italian economist Vilfredo Pareto in 1906. A Pareto improvement is a situation when at least one individual can be better off without making another worse off. This is a Pareto non-optimal point where there are chances for more welfare in society without making anyone worse off. Pareto efficiency is said to occur when it is impossible to make one party better off without making someone worse off, which could also be named as Pareto optimal point. According to the theory, any welfare activities beyond this point may benefit one party but create discomfort for another.