ECON-UA 2 Chapter Notes - Chapter 14: Pareto Efficiency, Economic Surplus, Productive Efficiency

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Economic efficiency: a situation in which every possible pareto improvement is being exploited: side payments & pareto improvements b. i. b. ii. If any action creates greater total gains for some than total losses to others, then a side payment exists which, if transferred from the gainers to the losers would make the action of a pareto improvement. The appropriate side payment is not always easy to arrange b. iii. When someone is harmed by an action & a side payment cannot be made then even though the action might create greater gain than harm, it might not be considered fair: productive efficiency vs. economic efficiency c. i. Productive efficiency is a necessary but not sufficient condition for economic efficiency c. i. 1. An economy must produce a mix of goods & distribute them in a way that exploits all pareto improvements: competitive markets & economic efficiency, reinterpreting the demand curve a. i.

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