The Pareto concept of efficiency and its applications

The Pareto concept of efficiency

Efficiency is a deceptively simple concept with invaluable contributions to economics. Efficiency offers us a qualitative way to differentiate between two or more economic systems and actually decide which system is "better" or "worse."

According to Pareto an economy is efficient when it provides its consumers with the most desired set of goods and services, given the resources and technology of the economy.

In Pareto's words:
"We will say that the members of a collectivity enjoy maximum ophelimity in a certain position when it is impossible to find a way of moving from that position very slightly in such a manner that the ophelimity enjoyed by each of the individuals of that collectivity increases or decreases. That is to say, any small displacement in departing from that position necessarily has the effect of increasing the ophelimity which certain individuals enjoy, and decreasing that which others enjoy, of being agreeable to some, and di...