- Submitted By: ampare
- Date Submitted: 12/19/2010 9:56 PM
- Category: Business
- Words: 265
- Page: 2
- Views: 270

There are 30 students in an economics class. Each student likes doughnutsâ€”all types, and the more the better. But they differ in there preferences. Half of the students prefer chocolate doughnuts to plain. The other half of the students prefer plain to chocolate. The instructor wishes to give away all the doughnuts he have. Explain whether the actions in part (a) through (c) result in a situation that is economically efficient. a. The instructor brings in 60 doughnuts (all plain) and gives them to a single student; no other student receives any doughnuts.

b. The instructor brings in 60 doughnuts (all plain) and give two to each student. c. The instructor brings in 60 doughnuts (half plain, half chocolate) and gives two (one of each kind) to each student.

a. This situation is efficient (which does not mean that it is fair). Once the student is given the doughnuts, there is no way to make anyone better off without harming someone. (For example, taking some donuts away from the lucky student to give them to others would harm that student.) b. This situation is efficient. All students like doughnuts. Some like chocolate more than plain, but once they are given the plain doughnuts, there is no way to make any one of them better off without harming another one. c. This situation is inefficient. After the doughnuts are distributed by the teacher, everyone can be made better off-while harming no one--through trades that allocate the chocolate doughnuts to students who prefer chocolate, and the plain doughnuts to students who prefer plain.