Define Pareto optimality. Use the definition of Pareto optimality to demonstrate that the market for buying and selling owner-occupied housing follows the requirements for Pareto optimality. Apply a supply and demand diagram to your answer. Let equilibrium market prices paid equal $250,000 per house and quantity sold equal 1,000 houses per month. Why is this type of exchange Pareto optimal? On the other hand, the government’s use of eminent domain is thought to violate Pareto optimality. The government still pays the homeowner fair market value ($250,000). Nevertheless, use the definition of Pareto optimality to show that the use of eminent domain violates Pareto’s guidelines for efficient exchange. Use the supply curve to identify which homeowners are made worse off by eminent domain, violating the Pareto guidelines.