ABSTRACT
The basic problem in economics is that of maximizing an objective function subject to a constraint. In the context of an economy with many goods and limited productive resources, constrained maximization requires that certain marginal equalities—the Pareto Optimum conditions—be satisfied. If interpersonal utility comparisons are not possible, these equalities (along with the higher order conditions) determine a maximum only in the sense that they correspond to a point on the utility frontier along which an individual’s welfare can only be improved at the expense of someone else. Nevertheless, an important welfare conclusion is obtained, that if the equalities are not satisfied there will be a loss in potential welfare because’ the satisfaction of the equalities would allow at least one person to be made better off while all others maintain their welfare status.
