Kenneth Arrow discussed two important situations in which profit maximization can be socially inefficient. One of these occurs when
A) there is an imbalance of knowledge between buyer and seller.
B) business would be an "inept custodian" of public values.
C) firms are unwilling or simply refuse to maximize profits.
D) corporate culture promotes dysfunctional social relations.

Question

Quizplus · Accepted Answer

When there is an imbalance of knowledge between buyer and seller, the seller may take advantage of the buyer, leading to a socially inefficient outcome. This is known as the problem of asymmetric information, which Kenneth Arrow extensively studied. It can result in market failure and a need for government intervention. The other options listed in the question are not directly related to Arrow's concerns about profit maximization and social efficiency.

Kenneth Arrow Discussed Two Important Situations in Which Profit Maximization