Define a Pareto efficient outcome. Does it ensure equity? Explain with an example
What will be an ideal response?
An outcome is said to be a Pareto efficient outcome if it is not possible to make someone better off without making someone else worse off. Pareto efficiency does not ensure equity. For example, $100 is divided between two individuals such that one individual receives $75 and the other individual receives $25. This allocation is Pareto efficient as it is not possible to make an individual better off without making the other worse off, but the allocation does not represent equity.
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The price of wine has risen from $7 to $9 per bottle and the price of cheese has fallen from $6 to $5 per pound, while Anne's income has stayed fixed at $46 per week. Since the price changes, Anne has been buying 4 bottles of wine and 2 pounds of cheese per week. We can conclude that
a. Anne is indifferent about the price changes. b. Anne is worse off after the price changes. c. Anne is better off after the price changes. d. Anne may be worse off, better off, or indifferent after the price changes.
A person is risk neutral if:
A. her indifference curve is concave to the origin. B. her indifference curve is convex to the origin. C. her indifference curve coincides with the expected consumption line. D. her indifference curve coincides with guaranteed consumption line.
Suppose the current exchange rate between the U.S. dollar and the Mexican peso is $0.12 = 1 peso. Furthermore, suppose the price level in the United States rises 25 percent at a time when the Mexican price level is stable. According to the purchasing power parity theory, what will be the new equilibrium exchange rate?
A) $0.15 = 1 peso B) $0.09 = 1 peso C) $0.13 = 1 peso D) $0.08 = 1 peso
Refer to the above figure. Suppose this industry was perfectly competitive and then merged into one monopolistic firm. The monopoly would
A. reduce output from Q3 to Q1. B. raise price from P1 to P4. C. raise price from P1 to P2. D. reduce output from Q2 to Q1 and raise price from P3 to P4.