In economic terms, if it is possible to make at least one person better off without making anyone else worse off, the current situation is described as what?

Introduction / Context:
Welfare economics uses the concepts of Pareto efficiency and Pareto improvement to assess how resources are allocated in an economy. A situation is Pareto efficient if no one can be made better off without making someone else worse off. Conversely, if such an improvement is possible, the current allocation is not Pareto efficient. This question asks you to identify how we describe a situation where a Pareto improvement is still possible.

Given Data / Assumptions:

• We are examining a particular allocation of resources or goods among individuals.
• It is possible to make someone better off without making anyone worse off.
• No redistribution that harms others is needed to achieve that improvement.
• We are using the standard Pareto framework in welfare economics.

Concept / Approach:
A Pareto efficient allocation is one in which all possible Pareto improvements have already been exhausted. If there exists at least one feasible change that makes at least one person better off while making no one worse off, the current allocation is Pareto inefficient. A move from the current allocation to the improved one is called a Pareto improvement, and the improved state can be described as Pareto superior relative to the original. However, the question is about the initial situation, not the improved one. Therefore, we label the initial situation as inefficient in the Pareto sense.

Step-by-Step Solution:
Step 1: Recognize that the ability to make someone better off without hurting others defines a Pareto improvement. Step 2: Recall that if a Pareto improvement is possible, the current allocation is not Pareto efficient. Step 3: Understand that the appropriate term for such an allocation is Pareto inefficient or simply inefficient in the Pareto sense. Step 4: Select the option that best captures this idea, which is “Inefficient”.

Verification / Alternative check:
You can picture a simple Edgeworth box diagram where points inside the contract curve represent allocations where mutual gains from trade are still possible. These interior points are Pareto inefficient because moving to the contract curve can make someone better off without making others worse off. Only points on the contract curve are Pareto efficient. Since the question describes a situation where an improvement is still possible, it corresponds to an interior point and thus an inefficient allocation.

Why Other Options Are Wrong:
Efficient: This would mean that no Pareto improvements are possible, which contradicts the condition given in the question.
Optimal: In many contexts, optimal implies some form of efficiency, often Pareto efficiency or social welfare maximization, so it does not describe a situation where improvements are still possible.
Pareto superior: This term describes the improved allocation relative to the original one, not the original situation itself. The question is about the nature of the current situation where improvement is possible, so Pareto superior is not the correct label.

Common Pitfalls:
Some learners confuse the label for the improved allocation (Pareto superior) with the label for the original allocation. It is important to distinguish between the state being evaluated and the direction of change. Another pitfall is thinking that any real world allocation is automatically efficient, which is not true. Many real allocations are Pareto inefficient because there are still mutually beneficial changes that could, at least in theory, make some people better off without harming others.

Final Answer:
If it is possible to make someone better off without making anyone worse off, the current situation is inefficient in the Pareto sense.