ECN437 Pareto Efficiency A central concept in economics is Pareto efficiency . A situation is said to be Pareto efficient if there is no way to rearrange things to make at least one person better off without making anyone worse off. What makes Pareto efficiency important is that almost everyone would agree that society should avoid situations that are not Pareto efficient. That is, when something could be done to make at least one person better off without hurting anyone, most people would agree we should do it. Economists often describe inefficient situations (those that fail the Pareto test) as "leaving money on the ground." To see why, imagine that someone walking along a deserted beach finds a $20 bill on the sand. If she picks it up, she's better off and no one else is worse off. Leaving the bill on the sand to wash out to sea would be silly. You might be tempted to reply "Wait, isn't
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