an1440f16 - Economics 440 Public Finance Fall 2016 Allen Head Answers to Assignment 1 1a See Figure 1a The box is 5 by 8 reflecting the total endowments

an1440f16 - Economics 440 Public Finance Fall 2016 Allen...

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Economics 440 Fall 2016 Public Finance Allen Head Answers to Assignment 1 1a. See Figure 1a: The box is 5 by 8, reflecting the total endowments of goods 1 and 2. Given their preferences, the households’ indifference curves are linear. In Figure 1a, Household 1’s indifference curves are red while those of Household 2 are blue. The Pareto efficient allocations are along the top and left edges of the box. 1b.Consider allocationAin Figure 1a. Allocation A is not Pareto efficient, because alloca-tionA’is Pareto superior to it. Household 1 is indifferent between the two allocations,

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