Tutor week 3 September to 21 September.docx - ECONOMICS 2B 2018 TUTOR WEEKS 3 September to 21 September 2018 ACTIVITY 1 Proof that an equal allocation

# Tutor week 3 September to 21 September.docx - ECONOMICS 2B...

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ECONOMICS 2B 2018 TUTOR WEEKS: 3 September to 21 September 2018 ACTIVITY 1 : Proof that an equal allocation of resources amongst individuals is not necessarily efficient. Use an Edgeworth box diagram to illustrate and explain this, showing the efficient/optimal allocations of two goods (Luxuries and Necessities) amongst two individuals (Chris and Lindy). Also clearly name the line that joins these points. Name the horizontal-axis, Luxuries and the vertical axis, Necessities. Also name the origin on the left bottom as Op (origin for Chris) and the origin on your top right as Om (origin for Lindy). 1
ACTIVITY 2 : Assume an Edgeworth box diagram where bikes are measured on the vertical axis and cars on the horizontal axis. Also assume that in terms of the distribution of these two sets of products the private sector consumers are measured in the lower left-hand corner and the public sector in the top right-hand corner. Indicate which of the following statements are correct / incorrect (mark with an X). Statement Correc t Incorre ct 1. A distribution of the two sets of products between the two sets of consumers is efficient when the indifference curves are tangent. 2. Pareto optimality refers to a situation where the products are allocated in such a way that some consumers can be made better off without making someone else worse off. 3. By moving from an inefficient distribution point in the Edgeworth Box diagram, at least one of the consumers will experience a higher level of utility while the other consumer will still experience the same level of utility. 4. Distribution points on the contract curve are synonymous with Pareto optimality. ACTIVITY 3 : Provide the three efficiency points that fits the three rules that should simultaneously be adhered to if production is to be truly efficient in the table below.

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