Which of the following is the correct statement about Pareto optimality ?
It is a situation in which it is impossible to make a person better off without making any other worse off.
Pareto optimality (Pareto efficiency), named after Vilfredo Pareto, is the basic efficiency criterion of welfare economics. It describes an allocation of goods and resources from which no reallocation can raise the welfare of one individual without lowering the welfare of at least one other.
Put differently, at a Pareto optimum every possible gain from exchange and production has already been exhausted; any change that helps someone must hurt someone else.
It does not require that all individuals be in a better position, nor that all be worse off — it is a statement about the impossibility of further mutual improvement, not about everyone's level of well-being.
It is very much linked to welfare: it is the central idea of Paretian welfare economics, connecting individual welfare (utility of each person) with social welfare (an efficient allocation for society).
Thus Pareto optimality is the situation in which it is impossible to make a person better off without making any other person worse off.
Hence, the answer is It is a situation in which it is impossible to make a person better off without making any other worse off.
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