Problem_Set_11_Answers - 319 Answers to Problems on Measuring the Gains-From-Trade Answer to Problem 11.1 What is a Pareto ecient economic state Answer

Problem_Set_11_Answers - 319 Answers to Problems on...

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319 Answers to Problems on Measuring the Gains-From-Trade Answer to Problem 11.1.What is a Pareto efficient economic state? Answer to Problem 11.2.Suppose a cake is to be allocated between Juan, Joseand Juanita. Each of them always prefers more cake to less.(i)What are the Pareto efficient allocations of the cake? (ii)Give an example of a Pareto inefficient allocation of the cake? (iii)Is any of the Pareto efficient allocations “fair”? (iv)Is any of the Pareto efficient allocations “unfair”? (v)Is any inefficient allocation of the cake “fair”? Answer to Problem 11.3.This is an extension of Problem 11.2. We observe thatJuan values the last piece of cake he has at $4, that Jose values his last piece of cakeat $4, and that Juanita values her last piece of cake at $6.(i)Is the total value of the consumption of the cake maximized?

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