An allocation is Pareto-efficient if no reallocation of resources would make some people ____________ without making others ______________

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The best way to answer this question is to say that the first blank should contain the words “could gain” or “could be made better-off” and the second blank should contain the words “poorer” or “worse-off.”  An allocation of resources is only Pareto-efficient if there is no way to make a change that would help one person without, thereby, harming someone else at the same time.

Pareto efficiency is the standard by which economists tend to evaluate allocations.  They tend to believe that it is impossible to improve upon a situation that is Pareto-efficient.  However, there are those who criticize this idea because it pays no attention to equity.  Imagine a situation where we have two people, one of whom makes $200,000 per year and another who makes $10,000.  A change that would allow the second person to make $30,000 per year while reducing the first person’s income to $199,000 per year would seem just to many people, but would not be Pareto-efficient.