Of all the constant elasticity of substitution social welfare function, only the one with elasticity of infinity will always choose the efficient outcome from a second-best consumption possibility frontier.
Answer the following statement true (T) or false (F)
True
Rationale: Second best utility possibility frontiers arise from the fact that redistribution involves deadweight losses. The only outcome that does not entail deadweight loss is then the outcome in which we do not redistribute. Overall consumption is maximized at that outcome -- and thus chosen by a CES social welfare function with infinite elasticity of substitution -- but it will generally not be chosen when the elasticity of substitution is less than that.
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If demand is unit elastic, revenue
A. and price rise and fall together. B. rises as price falls. C. falls as price rises. D. remains constant as price rises or falls.
Assets with zero covariance have yields that are
A) inversely related. B) positively correlated. C) negatively correlated. D) independent.
According to the Keynesian model, an economy will have persistent, high unemployment if:
a. the government runs a budget deficit. b. markets operate freely. c. its total spending is too low. d. firms make too many investments.
Refer to the above figure. What is the socially optimal point of production?
A. P3 and Q2. B. P1 and Q4. C. P4 and Q1. D. P1 and Q1.