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Questions › DSE › DSE 2014 › Q37
2 marks, −0.666666666666667Microeconomics › Welfare economics and social choice › Pareto efficiency and Pareto improvementsVery Hardabout 3 min

DSE 2014 Question 37: Welfare economics and social choice

A two-person two-commodity economy has social endowment x=1x=1x=1 (food), y=1y=1y=1 (wine). Preferences are increasing in own consumption but decreasing in the other person's wine: uA(xA,yA,yB)=xA[1+max⁡(yA−yB,0)]u_A(x_A,y_A,y_B)=x_A[1+\max(y_A-y_B,0)]uA​(xA​,yA​,yB​)=xA​[1+max(yA​−yB​,0)], uB(xB,yB,yA)=xB[1+max⁡(yB−yA,0)]u_B(x_B,y_B,y_A)=x_B[1+\max(y_B-y_A,0)]uB​(xB​,yB​,yA​)=xB​[1+max(yB​−yA​,0)]. Which of the following is a Pareto optimum allocation?

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A two-person two-commodity economy has social endowment x=1 (food), y=1 (wine). Preferences are increasing in own consumption but decreasing in the other person's wine: u_A(x_A,y_A,y_B)=x_A[1+max (y_A-y_B,0)], u_B(x_B,y_B,y_A)=x_B[1+max (y_B-y_A,0)]. Which of the following is a Pareto optimum allocation? (A) x_A=1/4,x_B=3/4, y_A=y_B=1/2 (B) x_A=x_B=1/2, y_A=1/4,y_B=3/4 (C) x_A=1/4,x_B=3/4, y_A=1,y_B=0 (D) x_A=1/4,x_B=3/4, y_A=0,y_B=1

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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