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  • Pareto Inefficiency as an Opportunity for Mutual Gain (MRS ≠ MRT)

Pareto Efficient vs. Pareto Inefficient Allocations

An allocation that is Pareto efficient is not necessarily better for every individual than any Pareto inefficient allocation. A person may prefer a specific inefficient outcome if it provides them with higher utility. For instance, while allocation 'L' is Pareto efficient, Angela is better off at the inefficient allocation 'N'. Moving from N to L would represent a welfare loss for her. This demonstrates that while moving from an inefficient point to a dominating efficient point is a mutual gain, not all efficient points are superior to all inefficient points from every participant's perspective.

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