You value your economics textbook at $40. Someone else values it at $30, but that person is willing to pay you $35 for your textbook. Would selling your textbook to this person for $35 be Pareto efficient?
A) Yes, because you received the maximum amount the other person would have been willing to pay for the textbook.
B) Yes, the person paid you $35 for the book so his net benefit was -$5, whereas your net benefit was also -$5. This exchange is Pareto efficient because each of you have the same net benefit.
C) Yes, because both of you are better off as a result of the trade.
D) No, because even though he was willing to pay more for the book than he valued it at, you wold not receive as much as you value it at, so you would be made worse off.

Question

Quizplus · Accepted Answer

Pareto efficiency occurs when a trade benefits both parties and neither can be made better off without making the other worse off. In this scenario, the other person values the economics textbook at $30, meaning that the maximum they would be willing to pay for it is $30. If you were to sell it to them for $35, you would be worse off than if you kept the textbook and therefore the trade is not Pareto efficient.

You Value Your Economics Textbook at $40