Asked by Yasmin Garcia on Jul 12, 2024
Verified
Refer to Scenario 16.3. Is the current distribution Pareto optimal?
A) Yes.
B) No, as Sam has more of both goods.
C) No, as it is possible to find a way for Sam to sell tee shirts to Sally (and receive candy in return) that would make both of them better off.
D) No, as it is possible to find a way for Sam to sell candy to Sally (and receive tee shirts in return) that would make both of them better off.
E) Without knowing the prices of tee shirts and candy we cannot determine if this distribution is Pareto optimal.
Pareto Optimal
A state of allocation of resources from which it is impossible to reallocate to make any one individual or preference criterion better off without making at least one individual or preference criterion worse off.
Marginal Utility
The additional satisfaction or utility that a consumer receives from consuming an additional unit of a good or service.
- Absorb the doctrine and implications of Pareto optimality within various resource apportionment scenarios.
- Employ the principle of marginal substitution rates to fathom consumer preferences and secure optimal allocation outcomes.
Verified Answer
MK
Meenalni KeshavJul 16, 2024
Final Answer :
C
Explanation :
Given the marginal utility schedules, redistributing goods such that Sam sells tee shirts to Sally in exchange for candy could increase the utility for both, making it not Pareto optimal in its current state.
Learning Objectives
- Absorb the doctrine and implications of Pareto optimality within various resource apportionment scenarios.
- Employ the principle of marginal substitution rates to fathom consumer preferences and secure optimal allocation outcomes.