Question

Choose the correct answer / answers:

1. If Pareto optimism prevails, then...
a) you always have to put someone worse if you want to put someone else better.

b) you have to put everyone else in a worse position if you want to put someone in a better position.

c) you have to put someone in a better position if you want to put someone else in a better position.                      

d) you do not have to put somebody worse if you want to put somebody else better.

2. The following situation is an example of market failure:
a) Managers earn up to a thousand times more than other employees.

b) Unemployment prevails due to high taxes.

c) Uncontrolled increase in the supply of money leads to hyperinflation.

d) Untreated waste water is discharged into a lake and no payment is made.

3. Redistribution policy can be justified by the fact that...
a) a market economy is often inefficient

b) a market economy can produce an unequal distribution of income.

c) a market economy may produce an unequal distribution of wealth.

d) the prevailing distribution of income does not correspond to the ethical goals of a society.

4. In Germany, the value added tax is to be temporarily reduced from 19 to 16 percent in the second half of 2020. This is a measure...
a) fiscal policy.

b) monetary policy

c) regulatory policy.

d) economic policy.

Answer 1

1) Pareto optimism prevails, it means that if you want to make somebody better off you cannot do it by making somebody else worse off.

Supposed to agents in the Market, and if Pareto optimum prevails, then to make one of the agents better off I would make the other one worse off.

Moreover pareto optimality is a condition where you can not make a person better off without making at least one other person (not everybody) worse off.

Hence, it is incorrect to say that if Pareto optimism prevails then you have to put everyone else in a worse position if you want to put someone else in a better position. It is not necessary to put everyone else in a worse position. You can do fine by just making only one person worse off to make somebody better off. So Option b is incorrect. Going by the logic of pareto optimality condition, Option c and d are automatically incorrect.

So if Pareto optimism prevails then you always have to put someone worse if you want to put someone else better.

Therefore, Option a is correct.