e360_apks_hw5ans

# e360_apks_hw5ans - person is maximized is the same as...

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Homework 5 Answer Key Andreas Pape, Kai Sun 1 1. No. Competitive equilibrium is pareto optimal. That is to say, after market allocation, the first best result has already been achieved, so that we cannot make pareto improvement. 2. a. Pareto optimal allocation: each person gets pen/notebook pair in the same color. . There are six different possibities. b. Utilitarianism allocation is the same as pareto optimal allocation here. c. The utility the three persons can get takes three possible values: 0, 1, and 2. The pareto optimal allocation is where the utility of each person is equal to 2, meaning that each person’s utility is maximized. When that is the case, utilitarianism allocation, where the sum of utility across each

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Unformatted text preview: person is maximized, is the same as pareto optimal allocation. 3. a. p q S ’ q S 30 q D q Homework 5 Answer Key Andreas Pape, Kai Sun 2 b. 30-q=2q => q=10, p=20 c. 30-q=2q+1 => q t =9.67, p t =20.34 DWL = (1/2)*1*(10-9.67) = 0.165 (or \$165) Government revenue = 9.67*1 = 9.67 (or \$9670) d. The same DWL as in part c. 4. a. A will rent 1 movie, and B will rent 0 movies. b. Public good. c. They should rent 2. (When the sum of marginal utility of A and B is greater than marginal cost.) d. A will rent 1 and B will rent 0, so that they will see 1 movie together. e. DWL = surplus(optimum) – surplus(market outcome) = DWL = (3+1.75-3)-(3-1.5)=1.75-1.5=0.25...
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e360_apks_hw5ans - person is maximized is the same as...

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