John has 1 liter of soft drinks and 6 sandwiches. Tina, on the other hand, has 6 liters of soft drinks and 2 sandwiches. With these endowments, John's marginal rate of substitution (MRS) of soft drinks for sandwiches is 2 and Tina's (MRS) of soft drinks for sandwiches is equal to 1/3. a) Is this allocation of resources efficient? Explain. b) Now suppose that there is a large number of Johns and a large number of Tinas and suppose that the price of a sandwich is $1 and the price of a soft drinks is $3. Given these prices and given the initial allocations, do vou thin
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- 7) Jane has 3 liters of soft drinks and 9 sandwiches. Bob, on the other hand, has 8 liters of soft drinks and 4 sandwiches. With these endowments, Jane's marginal rate of substitution ( MRS) of soft drinks for sandwiches is 4 and Bob's MRS is equal to 2. Draw an Edgeworth box diagram to show whether this allocation of resources is efficient. If it is, explain why. If it is not, what exchanges will make both parties better off?Jane has 9 liters of soft drinks and 11 sandwiches. Bob, on the other hand, has 11 liters of soft drinks and 9 sandwiches. At these endowments, Jane's MRSds of soft drinks for sandwiches is 0.8 and Bob's MRSds is 2.3. a) Illustrate the situation in the E-box. Which of the following graphs represents the situation correctly? [Select] 11 sandwiches 0₂ sandwiches 0₁ Graph a Graph b 11 0₁ soft drinks 0₁ soft drinks b) Is this allocation efficient? [Select] c) If allocation is not efficient, what changes will make both consumers better off? [Select] For question (a), choose one answer from "graph a" and "graph b" For question (b), choose one answer from "yes" and "no" For question (c), choose one answer from "Jane should trade some of her soft drinks for Bob's sandwiches","Jane should trade some of her sandwiches for Bob's soft drink" and "It is already efficient" 11Q. It is possible to have a Pareto efficient allocation where everyone is worse off than they are at an allocation that is not Pareto efficient?
- Van brings $40 to a baseball game to spend on sodas and pizza. The following diagram shows his budget constraint: SUCES OF PIZZA 20 18 16 14 12 4 2 0 4 6 U BC 10 SODAS According to the diagram, sodas cost 5 12 14 16 18 20 each, and puzza costs $ BC ? per slice. Adjust the diagram to show how Van's budget constraint would change if he had brought more money to the ballpark (Assume the prices of sodas1. Hatfield and McCoy hate each other. The only good they both consume WH W2 40 Mand McCoy's is whiskey. Hatfield's utility function is UH utility function is UM = WM-W, where WHI is Hatfield's consumption 40' Η of whisky and WM is McCoy's consumption of whiskey. The sheriff has confiscated a total of 60 litres of whiskey which he could give back to them or throw in the creek. Say that the Sheriff wants them both to be as well off as possible and weighs their "happiness" equally. How much whiskey should the sheriff give to each of them? Should he throw any whiskey in the creek; if so how much? =Question 6: Transitivity There is only one consumption good in the world (cities). Karen is moving – suppose that her preferencesover cities are described as follows: she strictly prefers city A to city B if either (1) the average rent in cityA is cheaper than in city B, or (2) the average rent is the same in both cities, and there are more goodrestaurants in city A than in city B. Are these preferences transitive? Justify your answer.
- Tim brings $40 to a football game to spend on sodas and pizza. The following diagram shows his budget constraint: 20 18 16 14 SLICES OF PIZZA 10 12 8 6 4 2 0 0 2 4 6 8 BC 10 SODAS According to the diagram, sodas cost 12 14 16 18 20 each, and pizza costs $ 6° BC per slice.Li's marginal rate of substitution of hamburger for steak is 1/4, and Zhang's marginal rate of substitution of hamburger for steak is 2. The allocation of hamburger and steak Pareto-efficient between Li and Zhang because is not; if Li traded some amount of hamburgers to Zhang for some steak, it is possible that each can be better off is; Zhang's MRS is exactly 8 times larger than Li's MRS is; no trade can make both Li and Zhang better off is not; if Li traded some amount of steak to Zhang for some hamburgers, it is possible that each can be better offPareto Efficiency Consider an economy with two people, Nancy and Roger, and two commodities, tea and biscuits. Currently, Nancy and Roger would both be willing to substitute two cups of tea for one biscuit. Further, if the economy were to produce one less cup of tea, the resources released from tea production could be used to produce three more biscuits. a. What is the value of the marginal rate of substitution and the marginal rate of transformation? b. Is the allocation in this economy Pareto efficient? Show graphically by drawing the indifference curve and the production possibilities schedule into the figure below. If not, should there be more tea or more biscuits? c. Explain why an economy in which airlines charge different passengers, different prices for the same flight is not Pareto efficient; when all passengers have the same preferences. d. Consider an economy which produces two goods, cars and shirts. Explain why if a tax is imposed on the consumption of cars but not on…
- 10. In terms of Adam Smith’s concept of the invisible hand, an efficient overall allocation of resources is likely to result from?12. Which of the following are actual Pareto-efficient changes? Explain briefly. a. You buy three oranges for $1 from a street vendor. b. You are near death from thirst in the desert and must pay a passing vagabond $10,000 for a glass of water. c. A mugger steals your wallet. d. You take a taxi ride in downtown Manhattan during rush hour.Two consumers, Budi and Marry, together have 10 apples and 4 oranges. a. Draw the Edgeworth box that shows the set of feasible allocation for the two individuals and two goods b. Suppose Budi has 5 apples and 1 orange, while Marry has 5 apples and 3 oranges. Identify this allocation in the Edgeworth box c. Suppose Budi and Marry have identical utility functions and assume that this utility function exhibits positive marginal utilities for both apples and oranges and a diminishing marginal rate of substitution of apples and oranges. Could the allocation in part (b) be economically efficient?