Assume that there are only two goods in the economy: video games and water. The total amount of these goods are given, there is no production. The world is inhabited by two people: Ann and Bob. Assume that Ann and Bob have regular preferences (not necessarily same for Ann and Bob) over video games and water; and that they have some endowments of these two goods. Now a well-intentioned politician says that because water is scarce and it is a necessity, both Ann and Bob should get half of the overall water resources (and get to consume their respective endowments of video games). Is this likely to be an efϐicient policy

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Business

Jennifer Zavala

7 September, 12:49

Assume that there are only two goods in the economy: video games and water. The total amount of these goods are given, there is no production. The world is inhabited by two people: Ann and Bob. Assume that Ann and Bob have regular preferences (not necessarily same for Ann and Bob) over video games and water; and that they have some endowments of these two goods. Now a well-intentioned politician says that because water is scarce and it is a necessity, both Ann and Bob should get half of the overall water resources (and get to consume their respective endowments of video games). Is this likely to be an efϐicient policy

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Ella Rasmussen · Answer 1

No

Explanation:

Ann and Bob might have different needs in water and different water consumption habits, they each should have what they need and nothing more, because it is a scarce product that is also a necessity for life to continue, so it would make for a bad policy to give half and half to the two people that are needing the water, the best and more efficient way would be to give just what they need.