Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A resource allocation where one party's gain results in another party's loss
B
An allocation of resources where no individual can be made better off without making someone else worse off
C
A situation where resources are equally distributed among all parties
D
A market where supply exceeds demand
Understanding the Answer
Let's break down why this is correct
Answer
Pareto efficiency occurs when resources are allocated in a way that makes at least one person better off without making anyone else worse off. For example, imagine a small town where two friends, Alice and Bob, share a pizza. If Alice has 6 slices and Bob has 2, they can rearrange the pizza so that Alice gives Bob one slice, making Bob happier without taking away from Alice's enjoyment too much. This new arrangement can be more efficient because it improves Bob's satisfaction without harming Alice, showcasing that they have reached a Pareto efficient outcome. In contrast, if Alice keeps all the slices and Bob is left with none, that situation is sub-optimal because Bob is not happy at all, and there is a better way to share the pizza that could benefit both.
Detailed Explanation
This option shows that resources are used in a way where no one can be helped without hurting someone else. Other options are incorrect because This option suggests that one person's gain means another's loss; This option implies that equal sharing is always best.
Key Concepts
optimal outcomes
Pareto efficiency
Topic
Optimal and Sub-optimal Outcomes
Difficulty
medium level question
Cognitive Level
understand
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