Pareto Efficiency is most often used to describe this state of the economy which enables society to extract the maximum possible utility of all the available technologies and resources.The increase in the share of any market participant necessarily entail a deterioration of others.
little history
for Justice noted that "Pareto efficiency" as a concept arose not from scratch.Even in 1776, the world-famous Englishman Adam Smith spoke of the existence of the invisible hand of the market, meaning it force that constantly sends to the general market equilibrium.Later this idea was further developed by Italian economist Vilfredo Pareto, who added to it the criterion of optimal allocation of resources.
concept and application
wording of this rule is quite simple: "Any change or innovation, which does not cause loss to anyone that is able to bring some people to use (in their own opinion), should be considered an improvement."Pareto Efficiency has a very wide meaning.This criterion can be used to solve optimization problems of various systems that need to improve some indicators, provided that the other does not deteriorate.In addition, Pareto efficiency is often used in the compositional approach to the planning of the development of economic systems in the interests of their constituent economic units.Note that the final optimum conditions may be a few, and if they satisfy the rule, any of them has a right to exist.All of them are so-called "Pareto" or "set of optimal alternatives."Since the formulation of the criterion allows any changes do not bring anybody additional damage, such options can be quite a lot, but in any case their number is finite.The situation in which Pareto efficiency is obtained, it is state of the system in which all benefit from sharing used.
80/20
When searching for optimal solutions to consider another law, named after the Italian economist.His so-called "80/20 rule."This principle of Pareto, an example of which is found at every turn, says: "80% of the results bring only 20% of all applications on its preparation efforts, and the remaining 80% of the works provide only 20% of the overall result."How does this knowledge can be applied in real life?For example, there is a clear lack of free time (currently faced with this situation almost every).So, it should allocate 20% of those activities that are really important to us, and stop spending their leisure time at 80% of nonsense.In trade: the majority of sales come from regular customers, and then you need to build long-term relationships with customers.House: 80% of clothes we wear only 20% of cases - is not it time to clean up the locker room?Add to that the Pareto efficiency, we can draw the following conclusions are disappointing, which will have to come to terms:
1. Much of what we do not give us what we will get in return.
2. Expectations and reality rarely coincide.Always worth to make allowances for random factors.
3. High results can be achieved only by individual action.
So if suddenly something does not work, do not give up.Confront the universal law is impossible.One has only a moment to pause, draw conclusions, and then continue to operate until the desired result is obtained.
