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Questions › DSE › DSE 2004 › Q5
2 marks, −1Microeconomics › Welfare economics and social choice › Pareto efficiency and Pareto improvementsHardabout 3 min

DSE 2004 Question 5: Welfare economics and social choice

Consider the exchange economy with two goods and two min⁡\minmin-utility agents, but now Agent 111's endowment of (X,Y)(X,Y)(X,Y) is (999,0)(999,0)(999,0) (Agent 222's endowment is (0,1000)(0,1000)(0,1000)). Consider allocation α\alphaα in which (x1,y1)=(0,1)(x_1,y_1)=(0,1)(x1​,y1​)=(0,1) and (x2,y2)=(999,999)(x_2,y_2)=(999,999)(x2​,y2​)=(999,999), and allocation β\betaβ in which (x1,y1)=(500,500)(x_1,y_1)=(500,500)(x1​,y1​)=(500,500) and (x2,y2)=(499,500)(x_2,y_2)=(499,500)(x2​,y2​)=(499,500).

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Plain-text version

Consider the exchange economy with two goods and two min -utility agents, but now Agent 1 's endowment of (X,Y) is (999,0) (Agent 2 's endowment is (0,1000)). Consider allocation α in which (x₁,y₁)=(0,1) and (x₂,y₂)=(999,999), and allocation β in which (x₁,y₁)=(500,500) and (x₂,y₂)=(499,500). (A) α is Pareto efficient but β is not (B) β is Pareto efficient but α is not (C) Neither α, nor β is Pareto efficient (D) Both α and β are Pareto efficient

Also written as: Consider the exchange economy with two goods and two min -utility agents, but now Agent 1 's endowment of (X,Y) is (999,0) (Agent 2 's endowment is (0,1000)). Consider allocation alpha in which (x_1,y_1)=(0,1) and (x_2,y_2)=(999,999), and allocation beta in which (x_1,y_1)=(500,500) and (x_2,y_2)=(499,500).

Welfare economics and social choice has come up 62 times in 6 exams since 2004.

What this question tests

This question is on Pareto efficiency and Pareto improvements, part of Welfare economics and social choice in Microeconomics.

What it means for an allocation to be efficient, checked in exchange economies and other settings.

TestStop has 40 past-paper questions on this subtopic.

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