Efficiency and Equity

There is a subfield of economics called “welfare economics” that focuses on evaluating the performance of markets. Two of the criteria used to assess markets are efficiency and equity.

Efficiency is a shortened reference to what economists call Pareto efficiency. The outcome of a set of exchanges between decision-making units in a market or network of markets is called Pareto efficient if it would be impossible to modify how the exchanges occurred to make one party better off without making another party decidedly worse off. If there is a way to change the exchanges or conditions of the exchanges so that every party is at least as satisfied and there is at least one party that is more satisfied, the existing collection of ...

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