―The marginal condition for a Pareto optimal composition of
output requires that the MRPT between any two commodities must
be equal to MRS between the two goods.‖
Where
A and B are two individuals, X and Y are
commodities. MRPT
XY
shows the
amount of Y that must be
sacrificed in order to obtain an additional unit of X. In other words,
MRPT is the rate at which one commodity is transformed into
another. It is the slope of the production possibility curve. In
summary a Pareto optimal state can be
obtained if the following
three marginal conditions are fulfilled.
1) The MRS between any two goods is equal for all consumers.
2) MRTS between any two factors is equal.
3) The MRPT of two goods be equal to the MRS of the same
goods.
A.P. Lerner and Hicks have called the
marginal condition as the
first order condition, which are as follows:
1) Optimum distribution among consumer.
2) Optimum resource allocation.
3) Optimum allocation of factor time.
4) Optimum factor product relationship.
5) Optimum direction of the products.
Second degree conditions: Marginal conditions are stated above,
though necessary are not sufficient for
the achievement of Pareto
efficiency. The sufficient conditions are
1) all indifference curves are convex (diminishing MRS).
2) all transformation curves are concave to origin (This implies
increasing MRPT).
Evaluation:
Pareto has made a vital contribution
to the development of
welfare economics. His concept of Pareto optimality is widely
appreciated. His rejection of cardinal
measurement of utility and
interpersonal comparison of utility is a major break through in the
analysis of welfare economics.
However critics have pointed
out certain deficiencies in
Pareto analysis.
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