Assume the Nozick rules are being followed in the economy so that the distribution of income is fair.What must be true for this to create an efficient allocation of resources?
A) All people are earning equal incomes.
B) There are no public goods, monopolies, high transactions costs, or external costs and benefits.
C) The costs of administering redistribution equals the benefits the poor receive.
D) The government must redistribute income in a fashion that minimizes the "big tradeoff."
E) The government must allocate resources using a command mechanism.

Question

Quizplus · Accepted Answer

The Nozick rules only ensure that the distribution of income is fair, but do not guarantee an efficient allocation of resources. In order to achieve efficiency, there can be no public goods (which cause market failures), monopolies (which restrict competition), high transactions costs (which can make trading inefficient), or external costs and benefits (which can distort incentives). Therefore, choice B is the best answer.

Assume the Nozick Rules Are Being Followed in the Economy