An island community has two residents: Katie and Dylan. Katie has a utility function - of Uk (2W)+1,000. Dylan's utility function is represented by Up 4 W². Here, W measures the wealth of each person. Assume Katie currently has $2, and Dylan has $4. 1) What is the island's welfare from the Utilitarian perspective? 2) What is the town's welfare from the Rawlsian perspective? 3) Describe a transfer between the residents of the island community that will maximize the island's welfare from the Rawlsian perspective. (Hint: Make sure to include who the transfer is from, who receives the transfer, and how much wealth is transferred.)

An island community has two residents: Katie and Dylan. Katie has a utility function - of Uk (2W)+1,000. Dylan's utility function is represented by Up 4 W². Here, W measures the wealth of each person. Assume Katie currently has $2, and Dylan has $4. 1) What is the island's welfare from the Utilitarian perspective? 2) What is the town's welfare from the Rawlsian perspective? 3) Describe a transfer between the residents of the island community that will maximize the island's welfare from the Rawlsian perspective. (Hint: Make sure to include who the transfer is from, who receives the transfer, and how much wealth is transferred.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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