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Questions › DSE › DSE 2012 › Q27
2 marksMicroeconomics › Welfare economics and social choice › Pareto efficiency and Pareto improvementsHardabout 4 min

DSE 2012 Question 27: Welfare economics and social choice

AAA and BBB live in an exchange economy. There are two goods XXX and YYY. Utility functions of AAA and BBB are UA(x,y)=x+yU^{A}(x,y)=x+yUA(x,y)=x+y and UB(x,y)=x2+y2U^{B}(x,y)=x^{2}+y^{2}UB(x,y)=x2+y2, respectively. AAA's endowment is 2 units of XXX and 1 unit of YYY, while BBB's endowment is 1 unit of XXX and 2 units of YYY. Consider the following allocations. Allocation 1: AAA gets 1.5 units of XXX and zero unit of YYY, BBB gets 1.5 units of XXX and 3 units of YYY. Allocation 2: AAA gets 1.5 units of XXX and 1.5 unit of YYY, BBB gets 1.5 units of XXX and 1.5 units of YYY.

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A and B live in an exchange economy. There are two goods X and Y. Utility functions of A and B are U^A(x,y)=x+y and U^B(x,y)=x²+y², respectively. A 's endowment is 2 units of X and 1 unit of Y, while B 's endowment is 1 unit of X and 2 units of Y. Consider the following allocations. Allocation 1: A gets 1.5 units of X and zero unit of Y, B gets 1.5 units of X and 3 units of Y. Allocation 2: A gets 1.5 units of X and 1.5 unit of Y, B gets 1.5 units of X and 1.5 units of Y. (A) Both the allocations are Pareto optimal (B) None of the allocations is Pareto optimal (C) Only allocation 1 is Pareto optimal (D) Only allocation 2 is Pareto optimal

Also written as: A and B live in an exchange economy. There are two goods X and Y. Utility functions of A and B are U^A(x,y)=x+y and U^B(x,y)=x^2+y^2, respectively. A 's endowment is 2 units of X and 1 unit of Y, while B 's endowment is 1 unit of X and 2 units of Y. Consider the following allocations. Allocation 1: A gets 1.5 units of X and zero unit of Y, B gets 1.5 units of X and 3 units of Y. Allocation 2: A gets 1.5 units of X and 1.5 unit of Y, B gets 1.5 units of X and 1.5 units of Y.

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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