Italian economist Vilfredo Pareto’s lasting contribution to economic t

Question

Italian economist Vilfredo Pareto’s lasting contribution to economic theory is his notion of Pareto optimality. Pareto’s concept attempts to provide a theoretical understanding of the rather abstract concept of desirability. Pareto’s desirability criterion holds that the state of world X is better than world Y if no one is worse off in Y than X and at least one member of world X is better off in X. Movement from one state to the other is termed “Pareto-desirable.”

Pareto-desirability as a norm has three important characteristics. The Pareto-desirable state is a consequentialist theory because it evaluates the world based on the state of the world at some given time. All institutions, actions, and policies are judged to be desirable based on the effect such thing has on the world. Furthermore, Pareto desirable states are personal, in the sense that moral goodness is defined as some better state for some person (even if it is a single person, as long as everyone else is no worse off). Finally, goodness is defined in terms of a person’s particular preferences; an individual is better off when achieving more of his or her preferences.

Pareto-desirability overlaps somewhat with the philosophical theory of utilitarianism, which states that what is best is what causes the most people to be happy. Where Pareto-desirability breaks ranks, however, is in its ranking of the alternative worlds. Utilitarianism considers and ranks all possible worlds, good and bad, but the Pareto criterion ranks only those alternatives in which one’s preference satisfaction is higher. Thus, comparisons between situations in which some people are better off and some worse off are not possible with the Pareto system. Of course, Pareto desirability is not a practical tool for use in the real world. Economists mainly use the Pareto criterion when analyzing systems on a theoretical level.   1 
 1. It can be inferred from the passage that economist theorists

A. regard Pareto desirability as little more than an abstract tool
B. continue to use the concept of Pareto desirability
C. disagree with the philosophical theory of utilitarianism
D. believe that consequentialism is the most appropriate way to view economic policies
E. do not believe the concept of moral goodness is useful in economics
 2 
 2. The author most probably stated “Of course, Paretodesirability… world,” in order to emphasize that

A. it is not practical to evaluate only situations in which people are better off because in the real world someone is always worse off as the result of a policy
B. Pareto desirability has a limited use to economists and is only applicable when analyzing monetary systems
C. utilitarianism has more application to the real world because it considers all possible worlds
D. Pareto-desirability can only be used as a theoretical tool because no true alternative worlds exist
E. the Pareto criterion would be more useful if theorists could find a way to use it to compare situations in which some people are better off and some worse off
 3 
 3. Which of the following statements provides the most logical continuation of the ideas expressed in the last paragraph of the passage?

A. When examining the way the world actually is, however, economists use utilitarianism.
B. Due to its considerable shortcomings, Pareto-desirability will likely diminish in importance in economic theory.
C. By examining the rules behind particular policies instead of the policies themselves, economists can determine the properties of the system that created them.
D. All three characteristics of Pareto-desirability are important to economists.
E. Until a more practical tool is developed, Pareto-desirability will continue to be economists’ prime way of understanding the world.
 4 
 4. The primary purpose of the passage is to

A. argue for the elevation of utilitarianism over Pareto-desirability in economic theory
B. evaluate the usefulness of the Pareto criterion to practical problems in economics
C. provide examples of some ways that economists attempt to conceptualize abstract concepts
D. suggest a revision to the predominant mode of economic thinking is called for
E. summarize a number of important features of a prevailing economic idea

Source: McGraw-Hill's GMAT

keerthinutakki · Accepted Answer

1. It can be inferred from the passage that economist theorists

A. regard Pareto desirability as little more than an abstract tool
B. continue to use the concept of Pareto desirability
C. disagree with the philosophical theory of utilitarianism
D. believe that consequentialism is the most appropriate way to view economic policies
E. do not believe the concept of moral goodness is useful in economics

A. regard Pareto desirability as little more than an abstract tool
Pareto desirability is abstract tool. Reverse answer. OUT

B. continue to use the concept of Pareto desirability
Last 2 sentences in the passage gives us idea that its gonna is used anyways.

C. disagree with the philosophical theory of utilitarianism
No mentione of disagreement of Pareto desirability with utilitarianism

D. believe that consequentialism is the most appropriate way to view economic policies
This option just plays with your retention memory of "Pareto-desirable state is a consequentialist theory". There is no mention of consequentialism being most appropriate way to view economic policies.

E. do not believe the concept of moral goodness is useful in economics
Beware of recycled language. This cannot be infered from the passage

2. The author most probably stated “Of course, Paretodesirability… world,” in order to emphasize that

A. it is not practical to evaluate only situations in which people are better off because in the real world someone is always worse off as the result of a policy
B. Pareto desirability has a limited use to economists and is only applicable when analyzing monetary systems
C. utilitarianism has more application to the real world because it considers all possible worlds
D. Pareto-desirability can only be used as a theoretical tool because no true alternative worlds exist
E. the Pareto criterion would be more useful if theorists could find a way to use it to compare situations in which some people are better off and some worse off

Prethinking :
“Of course, Paretodesirability… world,” - This sentence gives us an opinion that author stays positive inspite of the theory's shorfalls. The questions asks why “Of course, Paretodesirability… world,” is used in the passage, so our focus must be only on Paretodesirability.

A. it is not practical to evaluate only situations in which people are better off because in the real world someone is always worse off as the result of a policy
This options says that Paretodesirability is not practical, which matches "Economists mainly use the Pareto criterion when analyzing systems on a theoretical level.". This option points shortcoming of Paretodesirability that it is doesn't apply to real world scenario.

B. Pareto desirability has a limited use to economists and is only applicable when analyzing monetary systems
No monetary system is mentioned in passage.

C. utilitarianism has more application to the real world because it considers all possible worlds
Trap answer. Although true this is not what the question asked for.

D. Pareto-desirability can only be used as a theoretical tool because no true alternative worlds exist
Trap answer. Recycles language in passage. There is no mention in passage why Pareto-desirability can only be used as a theoretical tool.

E. the Pareto criterion would be more useful if theorists could find a way to use it to compare situations in which some people are better off and some worse off
No mention of this idea in passage.

3. Which of the following statements provides the most logical continuation of the ideas expressed in the last paragraph of the passage?

A. When examining the way the world actually is, however, economists use utilitarianism.
B. Due to its considerable shortcomings, Pareto-desirability will likely diminish in importance in economic theory.
C. By examining the rules behind particular policies instead of the policies themselves, economists can determine the properties of the system that created them.
D. All three characteristics of Pareto-desirability are important to economists.
E. Until a more practical tool is developed, Pareto-desirability will continue to be economists’ prime way of understanding the world.

Prethinking : 
Para 3 Summary : Pareto-desirability overlaps utilitarianism, but utilitarianism is suits better to real world scenarios. Inspite of shortcoming of Pareto-desirability author stays positive about Pareto-desirability because the purpose of Pareto-desirability is analyse theoretically. Pareto-desirability is used for some reason which need not suit real scenarios. So our answer should stay positive on Pareto-desirability.

A. When examining the way the world actually is, however, economists use utilitarianism.
No mention of preference in passage.

B. Due to its considerable shortcomings, Pareto-desirability will likely diminish in importance in economic theory.
Authors stayed positive on Pareto-desirability, so diminishing importance is unlikely to be logical continuation.

C. By examining the rules behind particular policies instead of the policies themselves, economists can determine the properties of the system that created them.
Hold.

D. All three characteristics of Pareto-desirability are important to economists.
No mention of importance to economists in passage. If you missed whether it is of importance to economist, you can still eliminate this asnwer because how can importance to economist be logical continuation.

E. Until a more practical tool is developed, Pareto-desirability will continue to be economists’ prime way of understanding the world.
From the summary of the entire passage one can comprehend that the reason for using Pareto-desirability is not because there wasn't any other theory to use. It is just that Pareto-desirability has certain reasons to use.

Now, go back to option C. My understanding was that there was a certain reason for using Pareto-desirability inspite of its shortcoming. Option C relates to my understanding.

4. The primary purpose of the passage is to

A. argue for the elevation of utilitarianism over Pareto-desirability in economic theory
B. evaluate the usefulness of the Pareto criterion to practical problems in economics
C. provide examples of some ways that economists attempt to conceptualize abstract concepts
D. suggest a revision to the predominant mode of economic thinking is called for
E. summarize a number of important features of a prevailing economic idea

Summary :
Para 1 : Author introduces some theory. Describes the theory.
Para 2 : Give more details about theory. Descibes three important characteristics of the theory.
Para 3 : Introduces some other theory called utilitarianism. Author tries to mark similarities and difference of 2 theories. Tells how Pareto criterion is not practical and still manages to be some theory that is useful for theoretical purpose.

Always try to read passage from structural point of view. Don't get deep into details. Always find why and what each para does. No matter how hard one tries to dig details of passage while reading it, there are high chances that details questions are tricky to answer. So one must always refer back to passage.

A. argue for the elevation of utilitarianism over Pareto-desirability in economic theory
The focus is only in para3, so this can't be primary purpose.

B. evaluate the usefulness of the Pareto criterion to practical problems in economics
No evaluation of usefulness of Pareto criterion to partical problems is done in passage.

C. provide examples of some ways that economists attempt to conceptualize abstract concepts
No mention of this in passage

D. suggest a revision to the predominant mode of economic thinking is called for
My understanding regarding this option is - there is no opinion about which was more predominant mode of economic thinking and there is no suggested revision.

E. summarize a number of important features of a prevailing economic idea
Matches my my whole comprehension of passage.

Sreyoshi007 · Answer

How is answer option C incorrect? I was confused between A and C and incorrectly marked C.

Could someone please explain why answer E is incorrect? The last passage is stating the limitation of Pareto-desirability and stating that economists still use it for analyzing systems on a theoretical level. So, as per my understanding answer E fits well. 
Thanks in advance

dvishal387 · Answer

For question 3 I eliminated the choices based on the passage and marked the correct choice C.
A- Eliminated this as this is discussed in last para of the passage.So, it cannot be the logical continuation.
B- This is too extreme a choice to continue the idea.
C- Keep it
D-This is already already discussed in second para of the passage and continuing with this idea does not look correct.
E-In last para the author states that pareto -desirability is not the prime way of understanding the world by economists(its utilitarianism). So eliminate this choice.

So, C is the best choice as it suggests a conclusion which would go appropriately with the passage.

Hope it helps!

Sent from my Redmi Note 3 using  GMAT Club Forum mobile app

Diwakar003 · Answer

Hey Vishal,

Could you please let me know where in the passage is this(highlighted above) discussed? I can see discussions only on usage of Pareto and nothing related to usage of Utilitariansm so I choose this. Thanks in advance!

Cheers!

Diwakar003 · Answer

Hey Sreyoshi,

Though I got this question wrong by choosing A, I'll let you know my thought process behind eliminating E. Nowhere it is mentioned that Pareto-d is the ONLY way to analyze systems on a theoretical level. May be it's used in conjunction with some other method to analyze. There could very well be better methods than Pareto-d to understand the world.

So we cannot say Pareto is the PRIME way of understanding the world. Hope it helped!

Cheers!

ShubhamRastogi · Answer

I have a different perspective to Q3.

Q. Which of the following statements provides the most logical continuation of the ideas expressed in the last paragraph of the passage?

Para : Classic Comparison between Pareto and Utilitarianism. It states that -  Pareto-desirability overlaps somewhat with the philosophical theory of utilitarianism, which states that what is best is what causes the most people to be happy.  
Difference starts from here :  Where Pareto-desirability breaks ranks, however, is in its ranking of the alternative worlds. Utilitarianism considers and ranks all possible worlds, good and bad, but the Pareto criterion ranks only those alternatives in which one’s preference satisfaction is higher. Thus, comparisons between situations in which some people are better off and some worse off are not possible with the Pareto system.  
This is part of the conclusion stem : Of course, Pareto desirability is not a practical tool for use in the real world. Economists mainly use the Pareto criterion when analyzing systems on a theoretical level.

The tone is - Ofcourse Pareto is not a practical tool, Economists only use it for XYZ reasons.

What should follow is a reconciliation to the comparison being done above. Which is done in Option A, that yes Pareto has limited usability and we only use it for some particular reason. We will continue to use the other option for better understanding of XYZ reasons. 
This essence is captured in Option A

A. When examining the way the world actually is, however, economists use utilitarianism.
B. Due to its considerable shortcomings, Pareto-desirability will likely diminish in importance in economic theory. -- Ignored as the economist still use it. Nothing in para points towards it.
C. By examining the rules behind particular policies instead of the policies themselves, economists can determine the properties of the system that created them. --- cant make this out from the para. Hence eliminated it.
D. All three characteristics of Pareto-desirability are important to economists. --- Not logically following the flow
E. Until a more practical tool is developed, Pareto-desirability will continue to be economists’ prime way of understanding the world. -- Tool is there. Not correct choice.

Please help me understand the flaw in my understanding.

Regards,
Shubham

Sajjad1994 · Answer

Official Explanation

3. Which of the following statements provides the most logical continuation of the ideas expressed in the last paragraph of the passage?

Difficulty Level:   750

Explanation

This is an odd type of applying information question that shows up every once in a while on the GMAT. Still, like all Reading Comprehension questions, the best answer will be based on the information in the passage. The  last paragraphs  states that Pareto desirability is not a practical tool, but that theorists use it to study systems on a theoretical level.

Choice C  continues this idea to show that the theorists don’t look at actual policies (which is a practical consideration) but instead at the rules behind them (a more theoretical consideration).

Choice A  doesn’t work because the passage doesn’t state or imply that economists use utilitarianism; it merely contrasts it with Pareto desirability.

Choice B  goes against the passage, which states that the concept is a  “lasting contribution.”  Choice D refers back to the second paragraph and would not logically appear at the end of the passage.

Choice E  is wrong because it states that Pareto desirability is the “prime way” of understanding the world, although the passage states that it is used for theoretical investigations only.

Answer: C.

VerbalBot · Answer

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Italian economist Vilfredo Pareto’s lasting contribution to economic t

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Italian economist Vilfredo Pareto’s lasting contribution to economic t

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