Question

The manager of the local branch of a bank in College Station is offered a transfer to Austin. This person is guaranteed a salary that is able to buy the goods and services that he/she was consuming in College Station. Assume that the welfare of this agent depends only on her consumption, and that the goods in College Station and Austin are comparable. Then, the manager:_______
A) can be better off with the transfer but cannot be worse off.
B) can be worse off with the transfer, but cannot be better off.
C) can be either better off, or worse off.
D) will be better off and worse off at the same time.
E) depends on the marginal rate of substitution whether the manager is worse off or not.

Answer 1

Answer:

Correct option A

Explanation:

Pareto efficiency implies that resources are allocated in the most economically efficient manner, but does not imply equality or fairness.

The manager at the local branch has offered transfer to Austin, this simply implies that the resources spent on Austin will be reallocated to other areas.

Therefore, this will make the manager better off with the transfer and not worse off.