— The purpose of using a discount rate is to assess the present value of future cash flows or benefits. It accounts for the time value of money, recognizing that a dollar received in the future is worth less than a dollar received today. By applying a discount rate, future cash flows can be adjusted to their equivalent value in today's terms. This allows for comparing and evaluating different investment options or determining the net present value of a project.
— Pareto Improvement refers to a situation where at least one person's well-being or utility can be increased without reducing the well-being or utility of any other individual. In other words, it involves making at least one person better off without making anyone else worse off. It represents an improvement in overall welfare or efficiency, as it signifies a reallocation of resources or changes in policies that generate positive outcomes for some individuals without negatively impacting others. Pareto Improvements are often used as a benchmark in welfare economics to evaluate the desirability of policy changes or economic allocations.