Economics 3D - Semester Test 1_Memo 2.doc - UNIVERSITY OF...

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Chapter 5 / Exercise 17
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UNIVERSITY OF JOHANNESBURGDEPARTMENT OF ECONOMICS AND ECONOMETRICSECONOMICS 3D: PUBLIC ECONOMICSECO3DB3/EKN3D01Semester Test 1: 26 August 2015EXAMINERS: DR J DIKGANG AND MR J MAHABIRDuration: 2 HOURSTOTAL MARKS: 100_____________________________________________________________________Instructions:Number of pages: 2The paper consists of five (5)questions. Each question carries 25 marks.Answer FOURquestions ONLYQuestion 1a.Discuss the proposition that Pareto optimality is a necessary but not a sufficientcondition for a welfare maximum.[15 marks]b.Distinguish between the so-called Pareto and Bergson criteria for a redistributionof income between rich and poor people.[10 marks]Answer1
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Chapter 5 / Exercise 17
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a. Answer (brief guidelines):Explain the third or top-level Pareto condition for an optimal allocation ofresources, which states the condition under which consumers and producers reachequilibrium simultaneously.Show this condition as a point of tangency between a price ratio and theproduction possibility frontier.Explain community welfare by means of community indifference curves.Show that the point of tangency signifying the Pareto condition on the productionpossibility curve does not necessarily coincide with the point of tangency betweenthe highest achievable community indifference curve and the productionpossibility curve.
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