In a two-good world,every allocation would be efficient only if:
A)both individuals were identical.
B)both individuals regard the two goods as perfect substitutes.
C)both individuals were identical and regard the two goods as perfect complements.
D)both individuals were identical and regard the two goods as perfect substitutes.

Question

Quizplus · Accepted Answer

Efficiency in a two-good world means that the allocation of goods maximizes the total utility of both individuals. In order to achieve this, both individuals must have the same preferences for the goods, which is the case when they regard the two goods as perfect substitutes and are identical. Perfect complements imply that the two goods are consumed in fixed proportions, which limits the potential for efficient allocations. Therefore, the best choice is D, which combines the assumptions of perfect substitution and identical preferences.

In a Two-Good World,every Allocation Would Be Efficient Only If