Asked by Alicion Connor on Jun 13, 2024
Verified
Marilyn and Chen live in an isolated valley and trade with no one but each other.They consume only bananas and tomatoes.Marilyn has an initial endowment of 4 bananas and 11 tomatoes.Chen has an initial endowment of 20 bananas and 27 tomatoes.For Marilyn, the two goods are perfect substitutes, one for one.For Chen, they are perfect complements, one for one.At all Pareto efficient allocations,
A) Marilyn must consume at least 15 tomatoes.
B) the slopes of the two traders' indifference curves are the same.
C) Marilyn must consume at least 14 tomatoes.
D) Chen must consume 22.50 bananas.
E) Chen must consume all of the bananas.
Perfect Substitutes
Items that can replace each other without affecting the consumer's satisfaction negatively.
Perfect Complements
Goods that are consumed together in fixed proportions because the consumption of one enhances the value or utility of the other.
- Gain insight into the concept of Pareto optimality applicable in multiple economic circumstances.
- Identify the effects that different utility functions exert on economic outcomes in a pure exchange economy.
Verified Answer
SL
sandra lopezJun 19, 2024
Final Answer :
C
Explanation :
Because Marilyn considers bananas and tomatoes as perfect substitutes, she will consume a combination of bananas and tomatoes that gives her the highest utility, regardless of the ratio. Thus, at a Pareto efficient allocation, Marilyn will consume her entire endowment of bananas and as many tomatoes as necessary to achieve her highest utility level. To do so, she must consume 4 bananas and at least 11 - 4 = 7 tomatoes. Therefore, Marilyn must consume at least 7 tomatoes. The only possible answer is C, as it is the only choice that satisfies this condition.
Learning Objectives
- Gain insight into the concept of Pareto optimality applicable in multiple economic circumstances.
- Identify the effects that different utility functions exert on economic outcomes in a pure exchange economy.