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According to normal economic micro-theory, any natural income distribution in a free-exchange market economy can be...

According to normal economic micro-theory, any natural income distribution in a free-exchange market economy can be consistent with a Pareto-Efficiency. Does this make sense? Can you think of a situation where we can move arbitrarily from one Pareto-efficient point to another point where welfare-efficiency can be increased?

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Answer #1

Pareto efficiency is the situation in which one agent can't be made better off without making other agent worse off.Natural income distribution is distributed among factors of production in the way there is no equity but it may be efficient outcome , making some sense.

Income transfers is the way where we can move arbitrarily from one Pareto-efficient point to another point where welfare-efficiency can be increased given that prices are same and it doesnot disincentives people to work.

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