PARETO EFFICIENT Meaning and
Definition
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Pareto efficiency, also known as Pareto optimality or Pareto optimality criterion, is an economic concept that measures the optimal allocation of resources in a given system where it is not possible to make any individual better off without making at least one individual worse off.
Derived from Vilfredo Pareto, an Italian economist, the concept revolves around the idea of maximizing overall welfare or utility without exacerbating inequality. A system is considered Pareto efficient when it achieves an allocation where it is not feasible to reallocate resources in a way that benefits any party without negatively impacting another. In other words, it signifies an optimal state where resources are allocated in such a manner that no individual can be made better off without making someone else worse off.
Pareto efficiency is a fundamental concept in various fields, including economics, political science, and social sciences. It is often used to evaluate and analyze the outcomes of economic policies, market mechanisms, or social interactions. A Pareto efficient outcome is seen as a benchmark to determine the level of efficiency or fairness in systems. However, it is important to note that Pareto efficiency does not necessarily guarantee equity or the absence of externalities, as long as no one is made worse off.
In summary, Pareto efficiency is a concept that refers to an optimal allocation of resources where no individual can be improved without harming another. It is a crucial criterion for assessing the efficiency and fairness of various systems.
Etymology of PARETO EFFICIENT
The term "Pareto efficient" is derived from the name of the Italian economist Vilfredo Pareto (1848-1923) who first introduced the concept. Vilfredo Pareto developed the concept of Pareto efficiency while studying income distribution and wealth in society. The term is used to describe a state in which no individual or group can be made better off without making someone else worse off. It has since been adopted in various fields, including economics, engineering, and social sciences, to describe situations where resources are allocated in the most efficient and optimal way.
