Explain the equity-efficiency trade-off. Give an example of conflicting equity and efficiency outcomes of a policy
What will be an ideal response?
The equity-efficiency trade-off refers to the trade-off between ensuring an equitable distribution of resources (equity) and increasing social surplus or total output (efficiency). A progressive tax system helps in the redistribution of income from the rich to the poor and ensures greater equity. However, it discourages the rich to work and save more.
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Refer to the above figure. S1 is the supply curve that includes only private costs. S2 is the supply curve that includes social costs. If the firm sets output by focusing on private costs, the per-unit external cost will equal
A) P2. B) P4 - P2. C) P4 - P1. D) P2 - P1.
If a fair gamble is played many times, the combined monetary losses or gains will
a. approach zero. b. be negative. c. be positive. d. result in an outcome that cannot be determined without more information.
In the transition from the short run to the long run, the number of firms in a competitive industry is
a. fixed. b. increasing at a constant rate. c. decreasing. d. able to adjust to market conditions.
Which of the following explains the vicious circle of poverty?
a. By investing in education and infrastructure at the same time, the country can overcome the problems of poverty. b. Poverty arises out of the lack of investment, but they cannot invest because they are poor. c. A nation can shift its production possibilities curve inward by shifting more resources into the production of capital goods. d. A nation can shift its production possibilities curve outward by shifting more resources into the production of consumer goods.