A collection of resources can be used only in two possible uses, to produce C worth $10.00 to consumers or for D worth $8.00 to consumers.

If the market works properly, these resources should be valued at $2.00.
If these resources are used to produce D, there is a social welfare loss of $2.00.
If these resources are used to produce C, market failure exists.
If these resources are used to produce D, Pareto efficiency is attained.


Suppose that Professor Smith argues that a proposed regulation from the EPA should not be enacted because he calculates that the cost of the regulation will be $200 million but the benefits to people will only be $100 million. In making this argument, Professor Smith is:

relying on the concept of economic efficiency.
ignoring the concept of economic efficiency because there is no market activity involved.
rejecting the concept of economic efficiency because environmental matters affect animals as well as humans.
replacing the concept of economic efficiency with government efficiency because the government action is replacing market action.


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