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Questions › DSE › DSE 2008 › Q32
2 marksMicroeconomics › Welfare economics and social choice › Pareto efficiency and Pareto improvementsHardabout 4 min

DSE 2008 Question 32: Welfare economics and social choice

Consider an exchange economy with persons 1 and 2 and goods x and y. Person 1's utility is u1(x,y)=x2y2u_{1}(x,y)=x^{2}y^{2}u1​(x,y)=x2y2 and person 2's is u2(x,y)=ex+yu_{2}(x,y)=e^{x+y}u2​(x,y)=ex+y. The total endowment is (2,1)(2,1)(2,1). The allocation (x1,y1)=(1,1)(x_{1},y_{1})=(1,1)(x1​,y1​)=(1,1) and (x2,y2)=(1,0)(x_{2},y_{2})=(1,0)(x2​,y2​)=(1,0) is

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Consider an exchange economy with persons 1 and 2 and goods x and y. Person 1's utility is u₁(x,y)=x²y² and person 2's is u₂(x,y)=e^(x+y). The total endowment is (2,1). The allocation (x₁,y₁)=(1,1) and (x₂,y₂)=(1,0) is (A) Pareto inefficient (B) Pareto efficient or inefficient depending on the endowments of the two persons (C) Pareto efficient or inefficient depending on the state of the world (D) Pareto efficient

Also written as: Consider an exchange economy with persons 1 and 2 and goods x and y. Person 1's utility is u_1(x,y)=x^2y^2 and person 2's is u_2(x,y)=e^(x+y). The total endowment is (2,1). The allocation (x_1,y_1)=(1,1) and (x_2,y_2)=(1,0) is

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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Question from the DSE 2008 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.