Economics • Economic BasicsHard
In welfare economics, what does the 'Scitovsky Criterion' evaluate when comparing two alternative economic states?
A. Whether a potential Pareto improvement can be achieved without rendering any individual worse off
B. Whether the beneficiaries of a policy change can compensate the losers and still remain better off
C. Whether the reversal of a policy change allows losers to bribe winners to prevent the initial shift✓ Correct Answer
D. Whether community indifference curves intersect in a manner that violates basic transitivity axioms
💡 Solution & Explanation
The Scitovsky Criterion resolves the ambiguity of the Kaldor-Hicks criterion by requiring that a policy change must pass both the Kaldor test and the Scitovsky reversal test. It checks whether the potential beneficiaries can compensate losers and whether the losers cannot simultaneously bribe the winners to prevent the change. This double criterion ensures that inconsistent welfare rankings do not occur when moving between different distribution states. Tibor Scitovsky formulated this test to refine welfare economic evaluations.
More Economics Economic Basics questions
- Which of the following economic concepts describes a market structure characterized by a single buyer and…
- Which of the following represents 'Price Discrimination' in market economics?
- What does the 'Remedial principle' or 'Coase Theorem' state regarding economic externalities?
- What does the 'Tobin's q' theory of investment suggest?
- What does a Gini coefficient of zero explicitly indicate regarding income distribution within a population?