Economics • Economic BasicsHard
In welfare economics, the condition known as 'Kaldor-Hicks Efficiency' permits which of the following scenarios?
A. A reallocation of resources where everyone is made strictly better off without exception.
B. A situation where no one can be made better off without making someone else worse off.
C. A change where the gainers could theoretically compensate the losers so that everyone is better off, even if actual compensation does not occur.✓ Correct Answer
D. A market outcome characterized by complete price rigidity due to oligopolistic collusion.
💡 Solution & Explanation
Kaldor-Hicks efficiency defines an economic reallocation where potential gainers could compensate losers so that society is better off overall, even if actual compensation never takes place. Strict Pareto improvements require making everyone better off without harming anyone.
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