Social Welfare function - Efficiency - the allocation of goods that maximizes the social welfare function (the “greatest good” principle).
converts the utilities of all individuals into an index of social utility, provides an alternative approach to defining economic efficiency and aggregate welfare..
Ex of Social Welfare function - three people with equal utility functions, then the allocation of wealth that maximizes social welfare is exactly equal shares of wealth for each person.
Only when each person has exactly the same marginal utility of wealth would opportunities for increasing the social welfare function disappear – the assumption of identical utility functions implies that the equality of marginal utility can occur only when wealth is equal