Pareto Efficiency:

Technical Definition: An  allocation of goods among individuals:  

is called efficient,  if

1)  the allocation X  is feasible, i.e., the allocation is available such that

Pareto Efficiency and the Edgeworth box

In  the Edgworth box, if we  go back  to our  last example, the Pareto efficient allocations are described by  all allocations

such that 1)  the allocation X  is feasible, i.e.,  the allocation is available,

Given  these pieces of information, we  try  to address an  important question, how  a decentralised economy, where all agents decide  independently about there demands, can be called good for the society, although no one cares about what  other people do,  i.e., everyone acts selfish. To find  an  answer to this question, we will narrow the expression for "good  for  the society" down to the notion of Pareto efficiency. Then we can state a very  interesting relationship between a general competitive  equilibrium and Pareto efficiency.