SIMON FRASER ECON290 Tut2 answer

SIMON FRASER ECON290 Tut2 answer - Pareto improvement. L K...

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Economics 290: Canadian Microeconomic Policy Tutorial #2 (Week of January 18) 1. Is it possible to have a Pareto efficient allocation where someone is worse off than he is at an allocation that is not Pareto efficient? 2. Is it possible to have a Pareto efficient allocation where everyone is worse off than they are at an allocation that is not Pareto efficient? 3. True or false? If we know economy is efficient in production, then we know the output of each product. 4. Why might individuals support the status quo over policies that can be shown to increase efficiency? 5. 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 efficient? If yes, briefly explain why. If no, please show how to make
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Unformatted text preview: Pareto improvement. L K F=25 MRTS = 2 L K C=5 MRTS = 1/2 Answer key: 1. Yes. Consider an efficient allocation where one person has everything. Then the other person is worse off at this allocation than he would be at an allocation where he has something. 2. No. 3. False. What we know is that production is at PPF, but we don’t the output of each product. 4. Some people are made worse off because of the policy change. 5. The current allocation of labor and capital is not efficient. There are numerous ways to make Pareto improvement. We can move along Food manufacturer’s isoquant by substituting a little bit of labor for capital. We can get a higher level of production for clothing without decreasing the production for food....
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This note was uploaded on 04/15/2010 for the course ECON 290 taught by Professor J liu during the Spring '06 term at Simon Fraser.

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SIMON FRASER ECON290 Tut2 answer - Pareto improvement. L K...

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