Question

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

Answer 1

No

Step-by-step 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.