Pareto Efficiency

In: Business and Management

Submitted By slmkz
Words 321
Pages 2
Markets, Organizations and the Role of Knowledge

What is Pareto efficiency? Why do economists use this criterion for comparing alternative economic systems?
An allocation of resources is Pareto efficient when there is no alternative that keeps all individuals at least as well off, but makes at least one person better off. One reason that economists use this criterion for comparing economic systems is that it is relatively uncontroverisial. Stronger criteria are likely to be met with more disagreement.

What is a property right?
What role do property rights play in a market economy?
A property right is a socially-enforced right to select the uses of an economic good. A property right is private when it is assigned to a specific person. Property rights are alienable when they can be transferred (sold or given) to other individuals. Since owners bear the wealth effects of their actions, there are strong incentives to rearrange property rights in market transactions to increase efficiency and value.

Many economists favor free trade between nations. They argue that free trade will increase total world output and make people of trading nations better off.
Discuss how this argument relates to concepts presented in this chapter.
Free trade allows countries to concentrate on producing goods and services for which they have a comparative advantage. This specialization increases the total production of goods in the global economy. Thus, each nation can be better off with free trade than if they individually tried to be self sufficient. (Free trade increases the size of the total pie; thus allowing all countries to have a bigger piece.)

What is an externality?
An externality is when one party’s action affects the utility or profits of another party. Externalities might be positive or negative.

What is the difference between general and specific…...

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