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Compared to the market for? cars, the market for vintage buttons has fewer buyers and sellers....

Compared to the market for? cars, the market for vintage buttons has fewer buyers and sellers. Social surplus is likely to be higher in the market for cars than in the vintage button market. Using the concept of Pareto? efficiency, which of the following statements is likely to be? true? A. The outcome in the market for cars is Pareto efficient because it is a perfectly competitive market. B. The outcome in the market for vintage buttons is Pareto efficient because it is not a perfectly competitive market. C. The outcome in the market for cars is not Pareto efficient because it is not a perfectly competitive market. D. The outcome in the market for vintage buttons is not Pareto efficient because it is a perfectly competitive market.

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Answer #1

None of the statements is true. This is because Pareto efficiency cannot be determined by the size of the market.

While social surplus in the market for vintage buttons is lower than in the market for cars, it is incorrect to assume that the equilibrium in the car market is Pareto efficient while the equilibrium in the vintage button market is not. The size of the social surplus in the market does not determine whether the market is Pareto efficient or not. Pareto efficiency would only depend on whether an individual can be made better off without making someone else worse off.

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