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Questions › DSE › DSE 2011 › Q49
2 marksMicroeconomics › Welfare economics and social choice › Pareto efficiency and Pareto improvementsHardabout 4 min

DSE 2011 Question 49: Welfare economics and social choice

Consider an exchange economy with two agents and aggregate endowment (10,10)(10,10)(10,10). The agents' utility functions are u1(x1,y1)=x1+2y1u_{1}(x_{1},y_{1})=x_{1}+2y_{1}u1​(x1​,y1​)=x1​+2y1​ and u2(x2,y2)=2x2+y2u_{2}(x_{2},y_{2})=2x_{2}+y_{2}u2​(x2​,y2​)=2x2​+y2​. Examples of efficient allocations are

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Consider an exchange economy with two agents and aggregate endowment (10,10). The agents' utility functions are u₁(x₁,y₁)=x₁+2y₁ and u₂(x₂,y₂)=2x₂+y₂. Examples of efficient allocations are (A) (x₁,y₁)=(5,10) and (x₂,y₂)=(5,0). (B) (x₁,y₁)=(0,10) and (x₂,y₂)=(10,0). (C) (x₁,y₁)=(0,5) and (x₂,y₂)=(10,5). (D) All of the above.

Also written as: Consider an exchange economy with two agents and aggregate endowment (10,10). The agents' utility functions are u_1(x_1,y_1)=x_1+2y_1 and u_2(x_2,y_2)=2x_2+y_2. Examples of efficient allocations are

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 2011 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.