Which of the following statement(s) are true with respect to the concept of ‘EFFICIENCY’ as used in mainstream economics?
- 1Efficiency occurs when no possible reorganisation of production can make anyone better off without making someone else worse off
- 2An economy is clearly inefficient if it is inside the Production Possibility Frontier (PPF)
- 3At a minimum, an efficient economy is on its Production Possibility Frontier (PPF)
- 4The terms such as ‘Pareto Efficiency’, ‘Pareto Optimality’ and ‘Allocative Efficiency’ are all essentially one and the same which denote ‘efficiency in resource allocation’
Select the correct answer using the code given below:
- A1 and 4 only
- B1 and 3 only
- C2 and 3 only
- D1, 2, 3 and 4
Explanation
Statement 1 states the Pareto criterion of efficiency correctly: no reallocation can make anyone better off without making someone worse off. Statement 2 is correct: producing inside the production possibility frontier wastes resources and is inefficient. Statement 3 is correct: an efficient economy must at minimum operate on its PPF. Statement 4 reflects the mainstream textbook usage in which Pareto efficiency, Pareto optimality and allocative efficiency denote the same resource-allocation concept. All four statements hold in the question's framing, option (D).