Which of the following statements about efficiency is/are TRUE? I. If, given some initial allocation, we are unable to implement a change that makes at least one person better off and no-one worse off, then the current allocation is efficient. II. An allocation is inefficient if we are able to reallocate in such a way that makes one person better off without making anyone else worse off. III. If we reallocate such that at least one person is better off and no one is wor off, then the situation after the reallocation will be efficient.
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- 1. We consider an economy with two goods, one person, and one firm. The person's con- sumption bundle is denoted by x = (₁, ₂), where x₂ € R₁ is the amount of good the person consumes. The firm's production plan is denoted by y = (3₁. 32) where ye ER is the net amount of good & the firm produces. An allocation in the economy is a pair (x, y). The person's utility function is given by 3 U (x₁, x2) = ln x₁ + 7/1 In In 1₂. 10 The firm produces good 1 using good 2 as the only factor of production. When the firm produces q units of good 1, it needs to use at least C(q) = q units of good 2. That is, the set of all possible production plans for the firm is Y = {(y₁, y2) € R²|y2 ≤-y₁ and y2 ≤0}. Before production, E₁ = 10 units of good 1 and E₂ economy. = 10 units of good 2 are available in this (1) What is the set of all feasible allocations? (2) Since there is only one person in this economy, an allocation is Pareto optimal if and only if it maximizes the person's utility among all feasible…The graph below is Mendork's production possibility curve for the only two goods that it produces-quirks and quarks. Quantity of Quarks 800 700 600 500 400 300 200 100 A 2 4 6 8 10 12 14 16 18 20 Quantity of Quirks Select one: Refer to the graph above to answer this question. If new technology increased the output of quirks by 50%, how many quirks could be produced if 700 quarks were produced? B A. 9 quirks. B. 18 quirks. C. 10 quirks. D. 20 quirks. E. No quirks.1. Write down an exchange economy model with two individuals and two goods, in whichthere is no consumption externality. State and explain the key assumptions of the model.Using the model, answer the following questions:(a) Explain carefully how the concept of Pareto efficiency differs from that of socialwelfare.(b) State the Second Theorem of Welfare Economics and explain carefully why it holds.What is the importance of the assumption of convex preferences to this theorem?
- Elliot and Jordy find themselves on a deserted island. The only two activities available are fishing and finding pineapples. In a full day, Elliot can catch 6 fish or find 12 pineapples or some linear combination of the two; in the same time, Jordy can catch 4 fish or find 10 pineapples or some linear combination of the two. Assume, initially, that there is no possibility of trade between Elliot and Jordy. If Elliot wishes to consume 4 fish per day, what is the maximum number of pineapples that he could consume each day in addition to the 4 fish? Briefly explain your reasoning. If Jordy wishes to consume 2 fish per day, what is the maximum number of pineapples that he could consume each day in addition to the 2 fish? Briefly explain your reasoning. Now assume that trade is possible between Elliot and Jordy. If they want to continue to consume the same number of fish indicated in part (1), how many additional pineapples would they be able to collectively consume each day relative to…The first principle of economics in Chapter 1 is thatpeople face trade-offs. Use a production possibilitiesfrontier to illustrate society’s trade-off between two“goods”—a clean environment and the quantity ofindustrial output. What do you suppose determinesthe shape and position of the frontier? Show whathappens to the frontier if engineers develop anew way of producing electricity that emits fewerpollutants cars. In an hour, Larry can either mow one lawn orwash one car; Moe can either mow one lawn or washtwo cars; and Curly can either mow two lawns orwash one car.a. Calculate how much of each service is producedin the following scenarios, which we label A, B,C, and D:• All three spend all their time mowing lawns. (A)• All three spend all their time washing cars. (B)• All three spend half their time on each activity. (C)• Larry spends half his time on each activity, whileMoe only washes cars and Curly only mowslawns. (D)b. Graph the production possibilities frontier for thiseconomy.…An economy produces two goods ,X and Y .lt uses two means of production, labour and capital. A unit of labour can produce either 1unit of X or 4units of Y (or linear combination of the two).A unit of capital can produce either 4units of X or 1unit of Y (or linear combination of the two)there are 100units of each means of production. (i) Draw the production possibility frontier of the economy when the two goods can only be produced by a mixture of both factors. (ii)What will be the opportunity cost of X if the economy produces 50units of X ? (iii) Given that the production technology is linear ,will the opportunity cost of X remain unchanged when we produce 90units of X ? (iv)Briefly explain the difference between the PPC with a constant opportunity cost and the PPC with an increasing opportunity cost as more output of one good is produced. Use a well labeled diagram to explain your answer?
- Consider a simple exchange economy with two people: Bob and Jake. Bob and Jake both have ten hoursof time available. The can use their time to do one of two things: make pancakes or make hamburgers.Bob can make two hamburgers in an hour or one pancake in an hour. Jake can make three pancakes in anhour or two hamburgers in an hour. Use this information to answer the following questions:a.) Draw Jake and Bob’s PPFs, with hamburgers on the x-axis.b.) Give equations for Jake and Bob’s PPFs in y = mx+b form, still treating hamburgers as the xvariable.c.) Who has absolute advantage in the production of hamburgers? Who has absolute advantage inthe production of pancakes?d.) Who has comparative advantage in the production of hamburgers? Who has comparativeadvantage in the production of pancakes?e.) Can Bob and Jake both benefit from trade if the terms of trade are one pancake per hambruger?WhyCan you confirm that I am correct with these positive and normative statements: Positive statement: When oil production slows in Texas, employment and tax revenues decline, and budget cuts at the state and local levels often follow. (Craymer has estimated that the state loses $85 million per year for every $1 decrease in oil prices.) Normative statement:If Russia agrees to production cuts and COVID-19 goes dormant in the hot summer months, as some experts expect, Texas’ coffers will have time to recover before lawmakers convene in 2021 to write a new budget. Or would this be a normative statement:Experts said Texas is better positioned to handle an oil price collapse today thanks to a diversified economy. The last collapse in oil prices, in 2014, also forced the industry to cut costs and otherwise become more efficient. But University of Texas at Austin energy resources professor Michael Webber said COVID-19 throws an unprecedented economic variable into the mix.1. Describe and illustrate what a Production Possibility Frontier (PPF) for a two good economy looks like, which if it used all its resources, can produce either 300 units of national security or 140 units of health care, or some combination of the two. 2. Explain what the opportunity cost is and calculate it for this example (assume constant opportunity cost).
- When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers (PPFS) for Freedonia and Desonia. Both countries produce grain and tea, each initially (i.e., before specialization and trade) producing 6 million pounds of grain and 3 million pounds of tea, as indicated by the grey stars marked with the letter A. TEA (Millions of pounds) tea. 16 14 12 10 8 6 2 0 0 PPF 2 Freedonia Þ 4 6 8 10 12 GRAIN (Millions of pounds) 14 16 ? TEA (Millions of pounds) 16 14 Note: Dashed drop lines will automatically extend to both axes. 12 10 6 2 0 0 PPF I 2 Desonia 4 6 8 10 12 GRAIN (Millions of pounds) 7 Freedonia has a comparative advantage in the production of while Desonia has a comparative advantage in the production of ▼. Suppose that…Sue Tom Good A 10 4 Select one: Good B 15 5 As shown in the table above, Sue and Tom each can produce two different types of goods. For Sue, if she only produces Good A, then she can produce 10 units of Good A per day. If she only produces Good B, then she can produce 15 units of Good B per day. For Tom, if he only produces Good A, then she can produce 4 units of Good A per day. If she only produces Good B, then she can produce 5 units of Good B per day. Which of the following statement is correct about comparative advantage? O a. Tom has a comparative advantage over Sue in the production of Good A. Sue has a comparative advantage over Tom in the production of Good B O b. Tom has a comparative advantage over Sue in both tasks O c. Sue has a comparative advantage over Tom in both tasks O d. Sue has a comparative advantage over Tom in the production of Good A. Tom has a comparative advantage over Sue in the production of Good B12. Which of the following are actual Pareto-efficient changes? Explain briefly. a. You buy three oranges for $1 from a street vendor. b. You are near death from thirst in the desert and must pay a passing vagabond $10,000 for a glass of water. c. A mugger steals your wallet. d. You take a taxi ride in downtown Manhattan during rush hour.