Question

Explain and define the concept of Pareto Optimality.

Answer 1

Pareto optimality is defined as a state of resource allocation . It is impossible to reallocate resources from this optimal point to make any entity or preference criterion better off without making at least another worse off .

Let us take the example of production possibility frontier . The points of the curve represent pareto optimal points or pareto efficient point . This is because we cannot move to another point on the curve by increasing production of both goods . If we want to move from one point on the curve to another we have to increase production of one good at the cost of another good .