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Questions › DSE › DSE 2014 › Q38
2 marks, −0.666666666666667Microeconomics › Welfare economics and social choice › Pareto efficiency and Pareto improvementsHardabout 3 min

DSE 2014 Question 38: Welfare economics and social choice

Consider a two-person two-good pure exchange economy with endowments e1=(1,0)\mathbf{e}^1=(1,0)e1=(1,0), e2=(0,1)\mathbf{e}^2=(0,1)e2=(0,1). Both have identical preferences u1(x,y)=u2(x,y)=1u^1(x,y)=u^2(x,y)=1u1(x,y)=u2(x,y)=1 if x+y<1x+y<1x+y<1 and x+yx+yx+y if x+y≥1x+y\ge1x+y≥1. The set of Pareto optimum allocations

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Consider a two-person two-good pure exchange economy with endowments e¹=(1,0), e²=(0,1). Both have identical preferences u¹(x,y)=u²(x,y)=1 if x+y<1 and x+y if x+y≥1. The set of Pareto optimum allocations (A) consists of the entire Edgeworth box (B) is just the equal division of the goods (C) is a null set (D) is {(0,0),(1,1)}

Also written as: Consider a two-person two-good pure exchange economy with endowments e^1=(1,0), e^2=(0,1). Both have identical preferences u^1(x,y)=u^2(x,y)=1 if x+y<1 and x+y if x+y>=1. The set of Pareto optimum allocations

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.

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Question from the DSE 2014 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.