Lolita wants to purchase a rather bland-looking shopping center built in the 1970s, tear it down, and construct an architecturally-stimulating office building that will confer $750,000 of benefits to society. In its current state, the shopping center is worth $900,000. Lolita goes to the city council with her proposal and tells the council members that the new office building will beautify the city and increase property-tax revenues. If the city council agrees to use eminent domain to allow Lolita to proceed with her project, the benevolent social planner will
A) rejoice since the area will become more beautiful.
B) rejoice since the size of the economic pie will increase.
C) remain indifferent since the enhanced beauty will offset the change in the size of the economic pie.
D) be unhappy since the size of the economic pie will decrease.

Question

Quizplus · Accepted Answer

The benevolent social planner would be unhappy because the size of the economic pie will decrease. The benefits of the new office building ($750,000) are less than the current value of the shopping center ($900,000), indicating a net loss in economic value.

Lolita Wants to Purchase a Rather Bland-Looking Shopping Center Built