Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Individuals may prioritize personal gains over societal benefits.
B
Uncertainty can lead to misallocation of resources.
C
All decisions made under uncertainty are inherently inefficient.
D
Pareto efficiency guarantees optimal outcomes in all scenarios.
Understanding the Answer
Let's break down why this is correct
Answer
In welfare economics, decision-making under uncertainty can lead to sub-optimal outcomes even when Pareto efficiency is achieved. Pareto efficiency means that resources are allocated in a way that no one can be made better off without making someone else worse off. However, if individuals or firms make decisions without complete information about risks and uncertainties, they might choose options that seem efficient but do not maximize overall welfare. For example, a person might invest in a project that appears profitable based on limited data but ends up losing money due to unforeseen circumstances. This situation shows that while the allocation may be efficient, it can still result in a loss of potential benefits for society as a whole, leading to sub-optimal outcomes.
Detailed Explanation
When people make choices without knowing all the facts, they might not use resources in the best way. Other options are incorrect because Some might think that people only care about their own benefits; It's a common belief that all uncertain choices are bad.
Key Concepts
Pareto efficiency
decision-making under uncertainty
welfare economics
Topic
Optimal and Sub-optimal Outcomes
Difficulty
hard level question
Cognitive Level
understand
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