Exhibit 3A-1 Comparison of Market Efficiency and Deadweight Loss

question 165

Multiple Choice

Exhibit 3A-1 Comparison of Market Efficiency and Deadweight Loss

As shown in Exhibit 3A-1, if the market price falls from $2.00 to $1.00, then:

• A) total surplus increases.
• B) deadweight loss increases.
• C) overproduction decreases.
• D) underproduction decreases.

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Definitions:

Social Preferences

Social Preferences indicate how individuals’ decision-making is influenced by the welfare of others, beyond self-interest.

Transitivity

In decision theory, the principle that if option A is preferred over B, and B is preferred over C, then A should be preferred over C.

Arrow's Impossibility Theorem

A theory indicating it is impossible to formulate a social preference ordering that satisfies all of a specific set of reasonable criteria when voters have three or more options.

Pairwise Majority Voting

A voting system in which each option is compared head-to-head with every other option, with the option winning the most direct comparisons being considered the overall winner.