Economics • Economic BasicsMedium
Which of the following situations describes a state of 'Pareto Efficiency' in welfare economics?
A. Income is distributed equally across all segments of society
B. No individual can be made better off without making at least one individual worse off✓ Correct Answer
C. Total tax revenue collected by the government is maximized
D. Marginal utility derived from consumption reaches zero for all individuals
💡 Solution & Explanation
Pareto Efficiency represents an economic state where resources are allocated in the most optimal manner such that no individual can be made better off without making at least one individual worse off. Distributing income equally or maximizing government tax revenue do not define this efficiency, as an unequal distribution can still be Pareto efficient if trades leave everyone better off. A related concept in welfare economics is the First Fundamental Theorem of Welfare Economics, which states that any competitive equilibrium leads to a Pareto efficient allocation.
More Economics Economic Basics questions
- What is meant by 'Liquidity Preference' as introduced by John Maynard Keynes in his General Theory?
- What is the primary economic implication of the 'Lucas Critique' in macroeconomic policy formulation?
- Which of the following economic concepts describes the minimum return that a factor of production must earn…
- Which of the following best describes 'Price Discrimination' by a monopolist?
- Which of the following best characterizes the concept of 'Externalities' in welfare economics?