Suppose that,recognizing that an efficient market outcome may not be equitable,a central planner announces that each agent's net benefit (the difference between the reservation value and the price paid)beyond a certain amount will be taken away and redistributed to other agents whose net benefit is below the specified level.This policy is expected to produce ________.
A) an efficient outcome where every agent has the same net benefit
B) an efficient outcome where every agent has 0 net benefit
C) an inefficient outcome where no trade will occur
D) an inefficient outcome where trades will occur at the higher price than at the equilibrium

Question

Quizplus · Accepted Answer

The policy introduces a redistribution mechanism that distorts incentives, leading to inefficiencies and potentially discouraging trade, as agents may not see the benefit of trading if their net benefit is capped and redistributed.

Suppose That,recognizing That an Efficient Market Outcome May Not Be