Pareto efficiency cannot be achieved when
A)price equals marginal benefit.
B)marginal benefit is the same for all consumers.
C)marginal cost is the same for all producers.
D)price equals marginal cost.
E)marginal benefit exceeds marginal cost.

Question

Quizplus · Accepted Answer

Pareto efficiency occurs when no change can make one person better off without making someone else worse off. This occurs when marginal benefit equals marginal cost. However, if marginal benefit exceeds marginal cost, further resources could be allocated to that activity to make one person better off without making someone else worse off, thus violating the requirement of Pareto efficiency. Therefore, when marginal benefit exceeds marginal cost, Pareto efficiency cannot be achieved.

Pareto Efficiency Cannot Be Achieved When