Economics • Economic BasicsHard
What does Arrow's Impossibility Theorem fundamentally demonstrate regarding collective decision-making and voting systems?
A. A dictator is always required for economic stability.
B. No rank-order voting system can convert individual preferences into a community-wide preference ranking while simultaneously satisfying a set of seemingly reasonable fairness criteria.✓ Correct Answer
C. Majority voting always leads to a Pareto optimal allocation of public goods.
D. Free markets fail to internalize negative externalities without government taxation.
💡 Solution & Explanation
Arrow's Impossibility Theorem demonstrates mathematically that no ranked voting system can aggregate individual preferences into a collective social ordering while satisfying a basic set of democratic fairness axioms. It proves that democratic voting mechanisms inevitably contain structural flaws when choosing among three or more options.
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