The Set of Efficient (Pareto-Optimal) Allocations That Cannot Be Improved

question 25

Multiple Choice

The set of efficient (Pareto-optimal) allocations that cannot be improved upon by any agent acting alone (in an individually rational manner) or by any group of agents acting together is called the

• A) contract
• B) core
• C) indifference region

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Definitions:

Price Decrease

A reduction in the cost of a good or service, which can increase consumer demand but may decrease supplier profits.

Consumer's Optimal

The point at which the combination of goods and services purchased by a consumer provides maximum satisfaction or utility, given the consumer's income and the prices of goods.

Price of Good

The amount of money required to purchase a specific good or service.

Substitution Effect

The economic principle that as prices rise or incomes decrease, consumers replace more expensive items with less costly alternatives.