Columns 1 through 4 of the accompanying table show the marginal utility, measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal utility Ricardo gets from saving. Assume that the prices of A, B, C, and D are $18, $6, $4, and $24, respectively, and that Ricardo has an income of $105. Column 2 Units of B Column 1 Column 3 Column 4 Units of A Units Units MU MU of C MU of D MU 1 72 54 1 24 15 1 15 1 36 30 2 12 3 45 3 12 3 8. 3 24 4 36 27 4 9 7 4 7 5 4 18 13 5 5 18 15 6. 7 6. 7 4 7 7 7 3.5 4 8. 12 8. 1 8 3 8. а. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility? b. How many dollars will Ricardo choose to save? Check your answers by substituting them into the algebraic statement of the utility-maximizing rule. In other words, show it works when using this rule. c.

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Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.