DSE 2012 Question 27: Welfare economics and social choice
A and B live in an exchange economy. There are two goods X and Y. Utility functions of A and B are UA(x,y)=x+y and UB(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.
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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.