Suppose a policy change generates $200,000 of benefits for low-income families and $175,000 of costs for high-income and middle-class families. We can best describe the change as
A) inefficient.
B) Pareto efficient.
C) potentially efficient.
D) equitable.

Question

Quizplus · Accepted Answer

This policy change is potentially efficient because the total benefits exceed the total costs ($200,000 in benefits vs. $175,000 in costs), suggesting that those who benefit could theoretically compensate those who bear the costs and still be better off, aligning with the concept of potential Pareto efficiency. However, without evidence that no one is made worse off, it cannot be considered Pareto efficient. The terms "inefficient" and "equitable" do not directly apply based solely on the cost-benefit comparison provided.

Suppose a Policy Change Generates $200,000 of Benefits for Low-Income