Briefly list and discuss in turn the three limitations of the Pareto criteria
What will be an ideal response?
The first limitation of the Pareto criteria is related to the fact that a Pareto improvement requires that no one be harmed. In a country as large and as complex as the United States, it will be nearly impossible to find a public policy that will not harm at least one individual. If taken literally, the Pareto criteria therefore seem of little practical use. The second limitation is that it suffers from a status quo bias. Since the starting point of evaluation of any Pareto superior move is the current situation, the status quo is given favoritism over a proposed change if the proposed change is not a Pareto superior move. If the status quo was arrived at unfairly, it is troubling to not be able to label a move towards fairness as a move towards increasing social welfare.
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If a bank does not have enough reserves, it can:
A. Buy bonds on the open market. B. Raise the interest rate it charges borrowers. C. Borrow reserves from the discount window. D. Make more loans.
Suppose 40 percent of all potential workers are highly skilled and contribute $50,000 to the firm each year. The remaining 60 percent of potential workers are less-skilled and contribute only $30,000 to the firm each year. Schooling costs a highly skilled worker y per year, while it costs a less-skilled worker 2y per year. What range of y will support a signaling equilibrium?
A. $0 < y < $50,000 B. $5,000 < y < $20,000 C. $10,000 < y < $20,000 D. $5,000 < y < $10,000 E. $20,000 < y < $50,000
The oversimplified formula for the multiplier is misleading because it ignores the effects of
A. price-level changes. B. the foreign sector. C. variable taxes. D. All of the above are correct.
Who is most likely to be poor?
A. Someone over age 65 B. A Hispanic American C. A black person D. Someone living in a female-headed household with children