Which among the following is NOT an assumption of Pareto optimality ?
The concept of utility is cardinal and cardinal utility function of every consumer is given
Pareto optimality is a state in which no one can be made better off without making someone else worse off. Its welfare analysis is built on a set of simplifying assumptions.
The standard assumptions are: each consumer maximizes satisfaction, each producer maximizes output or profit, every factor of production is used in producing every commodity, perfect competition prevails so factors are perfectly mobile, and there are no externalities.
Crucially, Pareto worked with ordinal utility: each consumer has a given ordinal utility function (an indifference map), so preferences are ranked but not measured. Avoiding interpersonal comparison of measured utility is the whole point of the Pareto criterion.
So satisfaction maximization, use of all factors in every commodity and perfect competition are assumptions, while the claim that utility is cardinal contradicts the ordinal basis of the concept.
Hence, The concept of utility is cardinal and cardinal utility function of every consumer is given.
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