Question

Which statement is TRUE concerning the relationship between efficiency and equity? Policies designed to increase equity will also increase efficiency. There is no trade-off between efficiency and equity if policies are fair. Policies designed to increase efficiency may decrease equity. Policies designed to increase efficiency will also increase equity.

Answer 1

Answer:

Option C Policies designed to increase efficiency may decrease equity.

Explanation:

The reason is that the company if the company wants to increase its efficiency then it will have to invest in the operations that will increase its efficiency. This investment will come from raising finance either from the issuance of shares or borrowing money. So this means policies designed to increase efficiency requires investment so the option C is what the explanation is saying.

Answer 2

Answer:

Policies designed to increase efficiency may decrease equity.

Explanation:

In economics, there is an unsolved dispute regarding whether a country can be efficient and equitable at the same time:

• efficiency refers to increasing production at the lowest possible costs
• equity refers to how are resources distributed throughout society.

Evidence that supports both sides of the argument, those who favor higher equity vs. those who favor higher efficiency exists, but lately according to the World Bank, those countries with higher income distribution have been growing at a faster rate. But that requires more regulation and taxes by the government that might on the long run decrease the overall efficiency and reverse that situation.  

The US is the largest economy in eh world and it is also one the most efficient countries, as well as China, but they are also two of the most unequal countries in the world (at least compared to developed economies). Income equality increases the standard of living of the population but the big question that remains is that if that increase is sustainable? E.g. Sweden, Norway, Denmark and Finland keep growing while having income distribution, but for how long?

Lately environmental issues are also a big debate because large economies and corporations are environmentally friendly, but the change in the world climate affects us all. Should the US government ban coal completely? or should it go a little further and ban all cows?