NOTE
Fairness and Efficiency
English translation of the original VNote “Fairness and Efficiency”, preserving its structure with only necessary small corrections.
This is a historical learning note and may contain outdated or incomplete understanding.
Note: This preserves the original VNote structure and wording as much as possible. Only clear errors or statistical/institutional definitions that have changed are corrected.
1. Social Welfare
1.1. What It Is
- Individual welfare is the satisfaction people obtain from meeting their wants and needs.
- Social welfare is the aggregate of individual welfare.
1.2. Classification
- Economic welfare: social welfare that can be measured directly or indirectly in monetary terms.
- Non-economic welfare: social welfare that cannot be measured in monetary terms.
1.3. Measuring Social Welfare
- Pareto efficiency
- Efficiency: resources are reasonably allocated among different production purposes so that people’s needs are met as fully as possible.
- This includes consumption efficiency for consumers and production efficiency for producers.
- It is no longer possible to change the allocation of resources so that at least one person becomes better off without making at least one other person worse off.
- Efficiency: resources are reasonably allocated among different production purposes so that people’s needs are met as fully as possible.
- Pareto inefficiency
- Pareto improvement
- When Pareto inefficiency exists, if reallocating resources improves the utility of some people without reducing the utility of others, the reallocation is called a Pareto improvement.
- Summary
- If changing the allocation of social resources can make everyone better off, or can make at least one person better off without making anyone else worse off, the allocation has not yet reached a Pareto-efficient state. Such a reallocation can increase social welfare.