7. The interaction of individual choices Because a type of fish is on the verge

Question

7. The interaction of individual choices Because a type of fish is on the verge of extinction, the government imposes rules that prohibit fishing in the publicly owned spawning grounds. At first, owners of fishing boats complain about this restriction on where they can fish, but soon they notice that the number of adult fish swimming outside the protected area is much higher than it was before. With the restriction, each fishing boat ends up catching more fish than it did before the restriction was in place. Which of the following principles of economic interaction best describes this scenario? Markets allocate goods effectively. O There is a tradeoff between equality and efficiency Markets usually lead to efficiency O When markets do not achieve efficiency, government intervention can improve overall welfare.

Explanation / Answer

In the given case, before government intervention, market was not allocating the good in the efficient manner.

This fact can be ascertained by the assertion that the fish is on the verge of extinction.

However, after government prohibited the fishing in the particular area, number of fish outside the prohibited area has increased.

This has helped the owners of fishing boats to catch more fish then they were able to before the government intervention.

So, government intervention has improved the outcome and enhances the efficieny in the market.

Thus, the principle of economic interaction that best describes the scenario is that when markets do not achieve efficiency, government intervention can improve overall welfare.

Hence, the correct answer is the option (4).

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