Pareto efficiency (Pareto optimality) is achieved when no one can be made better off without making someone else worse off. It encompasses three conditions: (1) productive efficiency (on the PPF), (2) allocative efficiency (producing the right mix of goods), and (3) consumptive efficiency (optimal distribution of goods among consumers). Crucially, equity (fairness of distribution) is NOT part of Pareto efficiency — a highly unequal distribution can still be Pareto efficient.