Consider a simple economy with two individuals (A and B) and two goods (x and y).
Can you please Write down the Pareto efficient conditions for this economy and explain the
first fundamental theorem of welfare economics?
Pareto Efficiency: - it is related to the optimal distribution of resources, it states that Pareto efficient condition of resource allocation is that condition where it is impossible to make someone better off without making someone else worse off.
In our question we have two individuals (A and B) and two goods (x and y) so, the Pareto efficient allocation of good X and good Y between A and B will be at that point where it would be impossible to make either A or B better off without making other worse off.
Step by stepSolved in 3 steps
- The law of diminishing marginal utility states that?arrow_forwardDescribe and graph your own example of a budget constraint using two goods (don’t forget to label your axes). In your example, make sure to state what the budget is, the price of the two goods, what the slope of the budget constraint equals (make sure to include the correct sign), and interpret what the slope represents.arrow_forwardWhat is the difference between a Social Welfare Function and Social Choice Rule? Explain whether requiring a Social Choice Rule rather than a Social Welfare Func- tion successfully resolves the paradoxical results in social choice theory.arrow_forward
- If an allocation is already Pareto efficient and if indifference curves between the two goods have no kinks, then a. two consumers who consume both goods must have different MRS's between them, but consumers may consume the goods in different ratios. b. two consumers with the same income who consume both goods must have the same MRS, but if their incomes differ, their MRS's may differ. c. any two consumers who consume both goods must always consume them in the same ratio. d. one consumer can be made better off but always at the expense of the other. e. all consumers receive the bundle that they prefer the most among all bundles on the entire Edgeworth box.arrow_forwardA date with Alex costs you $100 and gives you an additional 1000 units of utility. A date with Kelly costs you $200 and an additional 4,000 units of utility. Based only on the information you have, using the theory of rational choice, you most likely would: O be indifferent between the two dates O go on a date with Alex because the marginal utility per dollar is the greater of the two O go on a date with Kelly O go on a date with Alexarrow_forwardThe Law of Diminishing Marginal Utility is just a theory that has no application to everyday life. None of us behaves as if we were subject to this law. True or False? Explain.arrow_forward
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education