A major assumption underlying all these welfare measures is that each individual consumer is the best judge of what is better for himself. In addition, a consumer's actions reveal these preferences. Thus, if a consumer buys non-recycled paper when recycled paper is available at the same price, the consumer reveals that he prefers the non-recycled paper; in addition, she would be worse off if non-recycled paper were not available.
(a) Suppose the price of recycled paper is higher than the price of non-recycled paper. A consumer buys the non-recycled paper. Would requiring that all paper be recycled make him worse off? Why or why not?
(b) Suppose the price of recycled paper is higher than the price of non-recycled paper. A consumer buys the recycled paper anyway. Is this consumer irrational? Why or why not? Is she made worse off by the presence of non-recycled paper? Why or why not?
(c) A university is considering requiring the use of recycled paper, although it is more expensive than non-recycled paper. Students are either like the consumer in (a), and would buy cheaper non-recycled paper if it is available, or like the consumer in (b), who buy more expensive recycled paper. What is the total effect on student well-being if recycled paper is required-that is, does consumers' surplus increase or decrease?
(d) What is the effect of greater availability of choices on consumer well-being? That is, in economic modeling, do additional choices make people better off or worse off? Why?