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e1 335 f05

e1 335 f05 - PRELIM 1 ECON 335 Cornell University J Wissink...

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PRELIM 1- ECON 335 - Cornell University - J. Wissink - Fall, 2005 - Oct 3 Directions: Write legibly, concisely, & coherently. Label all axes, functions, & variables you use. READ QUESTIONS CAREFULLY. Draw pictures whenever possible. MAKE SURE YOU DO ALL PARTS OF EACH QUESTION. Total time for the test is 50 minutes. Total points on exam = 100. Answer the following six questions – see total points scores for each question next to question. 1. (12 pts – 4 pts each part) Do the following: a. Write down a brief statement of the 1st Fundamental Theorem of Welfare Economics that includes the set of "if" assumptions made to get the stated “then” result. b. Write down the three conditions that characterize Pareto efficient allocations in a 2-person; 2- output; 2-input model of an economy, assuming all the relevant curves are "nicely behaved." c. What set of conditions characterize Pareto efficient allocations in a 2-person; 2-output; 2-input model of an economy - assuming all the relevant players are "nicely behaved – if one of the 2 outputs, say X, is a collective consumption good? 2. (10 pts.) Consider an economy with two people, Dan and Jake, who consume two goods, bread and water. There are 75 units of bread. Dan is endowed with 50 units of bread and Jake is endowed with 25 units of bread. Suppose that, due to a drought, there are only 30 units of water. The government decides to allocate exactly half the available water to Dan and half to Jake. In order to prevent one person from exploiting the other in this period of drought, neither person may trade away any water to the other in exchange for more bread.

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