Asked by
Danny Galvez
on Oct 14, 2024
Verified
Dan and Marilyn consume two goods, x and y.They have identical Cobb-Douglas utility functions.Initially Dan owns 10 units of x and 10 units of y.Initially Marilyn owns 40 units of x and 20 units of y.They make exchanges to reach a Pareto optimal allocation which is better for both than the no-trade allocation.Which of the following is not necessarily true about the allocation they trade to?
A) Marilyn consumes 5 units of x for every 3 units of y that she consumes.
B) The locus of Pareto optimal allocations is a diagonal straight line in the Edgeworth box.
C) Dan's consumption of x is greater than his consumption of y.
D) Dan consumes more than 10 units of x.
E) Marilyn consumes at least 40 units of x.
Cobb-Douglas Utility Functions
A mathematical representation of consumer preferences that shows how utility depends on the consumption of different goods, characterized by constant elasticity of substitution.
Pareto Optimal
A state of allocation of resources from which it is impossible to reallocate to make any one individual or preference criterion better off without making at least one individual or preference criterion worse off.
- Acquire knowledge on how homothetic and Cobb-Douglas preferences affect allocation of consumption.
- Comprehend the principle of Pareto optimality across diverse economic contexts.
Verified Answer
MS
Learning Objectives
- Acquire knowledge on how homothetic and Cobb-Douglas preferences affect allocation of consumption.
- Comprehend the principle of Pareto optimality across diverse economic contexts.