Answer :

Final answer:

The Better-off test is satisfied horizontally when actions lead to improved utility for one good on the x-axis without detriment to others, considering the substitution and income effects. The test is also linked to productive efficiency, as better choices could potentially increase the quantities of all goods in consideration.

Explanation:

The Better-off test in economic theory is satisfied in considering the horizontal scope when an action results in one individual being made better off without making another individual worse off. Within the context of indifference curve analysis, the horizontal scope refers to the goods or services (such as candy or education) plotted on the x-axis. To satisfy the Better-off test horizontally, the chosen point on a graph, such as point B, must not decrease the satisfaction or utility of the other goods or services represented, while simultaneously increasing for the good on the horizontal axis.

A utility-maximizing point B is selected with the substitution effect and the income effect considered in relation to point A. If point B is exactly below point A, the two effects cancel each other out on the horizontal axis. If point B is to the right, the substitution effect dominates the income effect, while if it's to the left, the reverse is true. Furthermore, in the example given, point R is productively inefficient because there is an alternative, point C, where both goods represented on the axes can be increased at the same time.

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Rewritten by : Barada