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Tut1 - (b There are three Pareto efficient allocations in...

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Economics 290: Canadian Microeconomic Policy Tutorial #1 (Week of May 14) 1. If a brother and sister return home from trick-or-treating on Halloween and engage in a series of voluntary trades of candy, we can conclude that the initial allocation of candy between them was inefficient. True/False. Explain. 2. An economy contains two people and two goods, apples and bananas. Both people like both goods, but value them differently. For person 1, 1 apple is exactly equivalent to 2 bananas. For person 2, 2 apples are exactly equivalent to 1 banana. (a) Show that if person 1 has some bananas and person 2 has some apples, the resulting allocation must be inefficient.
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Unformatted text preview: (b) There are three Pareto efficient allocations in this question. Can you find all of them? 3. Was NAFTA ( N orth A merican F ree T rade A greement, a free trade agreement among Canada, the United States, and Mexico) Pareto improving? If not, why would voters elect governments to pursue it? 4. The current input bundles used by Food manufacturer and Clothing producer are illustrated in the two diagrams. Is the current allocation of labor and capital between two firms productive efficient? If yes, briefly explain why. If no, please show how to make Pareto improvement. L K F=25 MRTS = 2 L K C=5 MRTS = 1/2...
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