Indicate whether each of the following statements is true, false, or uncertain, and justify your...
Question:Indicate whether each of the following statements is true, false, or uncertain, and justify your answer. a. If everyone has the same marginal rate of substitution, then the allocation of resources is Pareto efficient. b. If the allocation of resources is Pareto efficient, then everyone has the same marginal rate of substitution. c. A policy change increases social welfare if, and only if, it represents a Pareto improvement. d. An increase in a state's cigarette tax insider to fund education is a Pareto-improving policy.
Pareto Efficiency:Pareto Efficiency or Pareto Optimality is a situation or condition in an economy where one cannot allocate all the resources to improve one individual and make him better without making another individual worse.
Answer and Explanation:Option A is false; Explanation: Pareto efficient is the situation where for making one better, another would be worse off. So everyone cannot have the same marginal rate of substitution. Option B is false; Explanation: If resources are Pareto efficient, then everyone would not have the same marginal rate of substitution as one will have more, and one would not have any. Option C is true; Explanation: This statement is true as Pareto improvement is a situation where all will gain, and no one will lose as it makes it more welfare for society. Option D is false; Explanation: As Pareto improvement is the state welfare of all so in this condition, raising tax will benefit state education and impact the cigarette manufacturer as the tax rate is high; these situations can be termed as Pareto efficient.
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