Economics • Economic BasicsMedium
In welfare economics, what does 'Pareto Efficiency' denote?
A. An allocation where resources are distributed in a completely egalitarian manner.
B. A state where it is impossible to make any individual better off without making someone else worse off.✓ Correct Answer
C. A condition where total market surplus is maximized through price controls.
D. An economic state with zero inflation and full employment.
💡 Solution & Explanation
Pareto efficiency describes an economic allocation state where resources cannot be reallocated to make any single individual better off without simultaneously making at least one individual worse off. This concept measures allocative efficiency rather than complete income equality or full macroeconomic employment. A Pareto-efficient state does not guarantee social justice or equity in distribution.
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