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Harry values a new jacket at $100 and buys it from Jenny at $80 (costing her $70 to produce it). Jim then offers Harry the same jacket at $60. Harry buys the jacket from Jim, and stops buying it from Jenny. Which of the following makes this event Pareto optimal?
A) Harry and Jim join to give Jenny $70.
B) Harry pays Jim $80.
C) Harry gives Jenny $30.
D) Harry gives Jenny $11.
Make sure that you consider two cases. In the first case, the consumer does not pay any tax before x is reduced, and in the second case, the consumer pays a positive tax before x is reduced.
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The financial writer Andrew Tobias described an incident that occurred when he was a student at the Harvard Business School
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