From an economic perspective, giving the wrong gift makes society poorer. If you

Question

From an economic perspective, giving the wrong gift makes society poorer. If you spend $50 on a gift and give it to someone who happens to think it is only worth $30, you’ve lost $20 in value. Whenever you receive a shirt that is the wrong size or style, a fruitcake you won’t eat, or something that is worth less to you than what the gift-giver spent on it, an economic inefficiency has occurred. Up until now we have thought of the market as enhancing efficiency by increasing the total surplus in society. But think of the billions of dollars spent on mismatched gifts as a failure to maximize the total surplus involved in exchange. Or, in other words, think of the efficiency of the gift-giving process as less than 100 percent. Assuming we want to maximize efficiency in our economy, what economic policies could we implement to address this problem or what gift giving norms could a non-profit advertising group try to change? Be sure to explain why in your answer.

Explanation / Answer

In order to maximize efficiency in our economy, we could follow the methods discussed below:-

Economic policies have to be charted out and framed keeping in mind the target groups that need it. This also means that several factors such as income, health, education, employment etc. must be taken into account while framing policies for achieving the desired effect on the economy at large. For instance an economic policy that provides concession on airline tickets targeted towards a low income group that faces near-poverty like situation is mismatched or is ineffective. This is because the target group is highly unlikely to travel anywhere far, let alone travel by expensive air transport. Moreover, since the policy is ineffective, the cost of implementation of the policy does not generate any benefits to the economy as a whole. It can even be considered a loss to the state. What the target group would appreciate is an economic policy that addresses their needs and problems and provides them an opportunity to rise above their near poverty situation. Hence, it is imperative that gift-giving norms and economic policies are well laid out and are localized.

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