ps9x313_f05 - 2) Suppose that the private marginal benefit...

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1) Recall Abe and Betty from the workbook problem set #9 Q2. That is, suppose u Abe = (2F + 1C) and u Betty = (1F + 1C). Assume total food available is F = 100 and total clothing available is C = 50. a) What allocations of food and clothing are on the "contract curve" in the Edgeworth-box for Abe and Betty? b) What allocations of food and clothing are on the "core" in the Edgeworth-box for Abe and Betty? c) Transcribe the allocations in your Edgeworth Box into a detailed utility possibilities frontier diagram. d) Suppose now that we agree that social welfare should be measured with the following function: W society = utility Abe + utility Betty . What allocation/allocations on your utility possibilities frontier in part (c) would maximize this social objective function? e) Suppose now that we agree that social welfare should be measured with the following function: W society = min{utility Abe , utility Betty }. What allocation/allocations on your utility possibilities frontier in part (c) would maximize this social objective function?
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Unformatted text preview: 2) Suppose that the private marginal benefit for commodity X is given by MB private = 10 - X, where X is the number of units consumed. The private marginal cost for producing X is constant at MC private = $5. For each unit of X produced, a constant external cost of $2 is imposed on the children of society. a) In the absence of any government intervention, how much X is produced? b) What is the Pareto efficient level of production of X? c) What is the value of deadweight loss if society ignores this externality situation? d) Calculate and show how a tax could be used to lead to the efficient level of production. e) Does your tax lead to an actual Pareto improvement in this market? Briefly, why or why not? f) How much revenue would the government raise with this tax? Econ 313 - Wissink - Fall 2005 PS#9 XtraQ (NOTE WE ARE JUMPING TO PS#9) DUE: by 5:00pm on Friday Nov 18, hand in during class or at the TAs office by 5:00pm...
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