SOLUTION PS6

# SOLUTION PS6 - second distribution to the first you would...

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Eco 100 Problem set # 6 Do the following problems: On page 429 of Mankiw, problem #6 (explain your views concisely – there is room for valid differences of opinion here) On page 429 of Mankiw, problem #8. On page 451 of Mankiw, problem #3.

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On page 451 of Mankiw, problem #7 (include the views of John Hicks and Pareto as well). John Hicks would prefer the first distribution because Hicksian social welfare measure adds up everyone’s real income with no concern about distribution, and the total income is higher in the first distribution (\$280,000) compared to the second distribution (\$250,000). Pareto developed ideas of efficiency rather than equity. If you go from the first distribution to the second, you would be making 9 people worse off and 1 person better off. If you go from the

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Unformatted text preview: second distribution to the first, you would be making 9 people better off and 1 person worse off. So both distributions could be considered Pareto optimal, since no change can make someone better off without making someone else worse off. On page 452 of Mankiw, problem #10. On page 452 of Mankiw, problem #11. On page 340 of Mankiw, problem #4. On page 342 of Mankiw, problem #9. On page 342 of Mankiw, problem #13. NOTE: For part a), total revenue should be \$2,100 + \$800 = \$2,900. d. For part a), adults are still charged \$7 and children \$4, the total revenue remains \$2,900, but the profit is now \$400. For part b), you would not put on the play because if the price is set at \$7, but there is a loss of \$400. For part c), everyone is worse off....
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