Asked by
nailea macias
on Oct 14, 2024
Verified
Jack Spratt's utility function is U(F, L) L.His wife's utility function is U(F, L) F.If Jack's initial endowment is 40 units of F and 20 units of L and if Jack's wife's initial endowment is 24 units of F and 40 units of L, then in an Edgeworth box for Jack and his wife, an allocation of F and L will be Pareto optimal only if it is at a corner of the box.
Utility Function
A mathematical representation that shows the relationship between the overall satisfaction or happiness a person derives from consuming different bundles of goods and services.
Pareto Optimal
An allocation scenario where it is impracticable to enhance the situation of any entity or preference measure without causing a decline for at least one other entity or benchmark.
Endowment
The stock of assets or resources provided to an individual, institution, or country, typically used to generate income or contribute to wealth.
- Master the concept of Pareto optimality throughout a range of economic environments.
- Appreciate the effect of disparate utility functions on the economic dynamics within a pure exchange economy.
Verified Answer
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Learning Objectives
- Master the concept of Pareto optimality throughout a range of economic environments.
- Appreciate the effect of disparate utility functions on the economic dynamics within a pure exchange economy.