Which of the following is a problem (from an efficiency perspective) with ration coupons as an...

Which of the following is a problem (from an efficiency perspective) with ration coupons as an approach to allocate goods in a shortage?

Group of answer choices

People who value the good the most, don’t get more of it than other people

The first people in line buy most of the goods

The government misses out on tax revenue

Prices go up

Expert Solution

Which of the following is a problem (from an efficiency perspective) with ration coupons as an approach to allocate goods in a shortage?

Correct answer choice:

People who value the good the most, don’t get more of it than other people

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Reason:

When ration coupons are distributed, it is done equally. It is a way to promote equality.

However, there always exists a tradeoff between equality and efficiency.

This allocation is not efficient, because not everyone will derive the same marginal benefit out of each unit allocated. People who are the poorest will value it much more than slightly better off people.

Thus, to promote equality, efficiency is compromised.

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Why other options are wrong:

The first people in line buy most of the goods - that is not possible, everyone gets equal coupons
The government misses out on tax revenue - this system is not meant to generate revenue
Prices go up - prices don't go up, actually they remain regulated

Rahul Sunny answered 2 years ago

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