Asked by Kwama Kenyatta on Jun 18, 2024
Verified
If the initial distribution of labor and capital is Pareto optimal, which of the following statements is TRUE?
A) It is possible to reallocate labor and capital across industries so as to increase the production of one good without decreasing the production of another good.
B) It is possible to reallocate labor and capital across industries so as to increase the production of one good, but only by reducing the production of another good.
C) It is possible to reallocate labor and capital across industries so as to increase the production of every good.
D) none of the above
Pareto Optimal
A condition where no individual or preference criterion can be better off without making at least one individual or preference criterion worse off, representing an optimum allocation of resources.
Labor
The human effort, including physical and mental capabilities, used in the production of goods and services.
Capital
Financial assets or the financial value of assets, such as funds held in deposit accounts and/or the physical factories, machinery, and equipment used to produce goods or services.
- Recognize principles of Pareto optimality in the context of resource distribution.
- Understand the conditions for and implications of Pareto efficiency in resource allocation.
Verified Answer
LB
Latisha BeatriceJun 20, 2024
Final Answer :
B
Explanation :
A Pareto optimal distribution means that it is impossible to reallocate resources to make someone better off without making someone else worse off. Therefore, increasing the production of one good would necessitate reducing the production of another, as resources are limited and optimally allocated.
Learning Objectives
- Recognize principles of Pareto optimality in the context of resource distribution.
- Understand the conditions for and implications of Pareto efficiency in resource allocation.