Two goods are allocated inefficiently between consumers when _____.
A)both consumers will lose from any further trades
B)it is impossible to make further trades and increase welfare
C)further trade will make one consumer worse off and not affect the other
D)welfare of both consumer can be increased with further trade

Question

Quizplus · Accepted Answer

If both consumers' welfare can be increased with further trade, then the initial allocation is inefficient because resources are not being allocated to their most valued uses. This implies that there are potential mutually beneficial trades that have not yet occurred. Only when all mutually beneficial trades have been made can an allocation of resources be considered efficient. Thus, option D is the correct answer.

Two Goods Are Allocated Inefficiently Between Consumers When _____