Ever wondered why not everyone gets what they want in a world with limited resources?
Economic system
Ever wondered why not everyone gets what they want in a world with limited resources?
Imagine a town with a limited supply of apples. Some people want apples for pies, others for juice, and still others just want to eat them. How do we decide who gets what?
Pareto efficiency is about making sure that resources are distributed in a way that no one's situation can be improved without making someone else worse off. It's like trying to share those apples so everyone gets a fair share without anyone feeling left out.
Example
If 10 apples are shared between 3 people, and each person gets 3 apples, no one can get more without someone else getting less.
Remember this
Pareto efficiency ensures that resources are allocated in a way that maximizes the total satisfaction of everyone involved.
Text adapted from Wikipedia, licensed under CC BY-SA 4.0.
Related concepts
Outline of economics
Why do we sometimes struggle to share resources fairly?
Pareto efficiency
Can you always make everyone happier without hurting anyone?
Risk parity
Risk parity allocates based on risk contribution, not capital allocation
Economic growth
How does more money, people, and machines affect a country's wealth?
Marginal utility
Why do you stop eating pizza after a few slices?
Permanent income hypothesis
Permanent income hypothesis (PIH) focuses on permanent income for consumption decisions
Educational content, not financial advice.
Swipe through 100 ML concepts daily
Open Pocket Polymath