Pareto optimality: an empty vessel

Figure 38 reproduces the main features of Figure 31 in Chapter 20. The Pareto optimal situation at Q₂ is identified by the tangency of the p₂ price-line with the transformation curve at that point. The suboptimal situation is that shown by the intersection of the p”₂ price line with the transformation curve at Q₁. In Chapter 20 we concluded tentatively – indeed, with deliberate naiveté – that the optimal position at Q₂ was Pareto superior to (or more efficient than) the suboptimal position at Q₁.