EC111Class10Answers

EC111Class10Answers - UNIVERSITY OF ESSEX DEPARTMENT OF...

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UNIVERSITY OF ESSEX Autumn Term 2011/12 DEPARTMENT OF ECONOMICS T. Hatton EC111 Introduction to Economics Answers to Class Exercises 10 (week 16) 1) a) Pareto Efficiency is defined as a situation where no-one can be made better off without making someone else worse off. Think in terms of the utility possibility frontier in the lecture notes. A Pareto improvement is a change where at least one person is better off and no-one is made worse off. b) 1. Exchange or consumption efficiency. There are no further mutually beneficial trades or exchanges that can be made between consumers. The result is that each consumer has the same marginal valuation of one good relative to another so all consumers have the same MRS. 2. Production efficiency. Factors of production are optimally allocated such that no additional output could be gained by one industry without reducing the output of another industry. This requires that the marginal product of any factor is the same across all industries and therefore that the MRTS is the same in each industry. Note that this ensures that the economy is on the PPF.
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This note was uploaded on 03/15/2012 for the course EC 111 taught by Professor Timhatton during the Spring '12 term at Uni. Essex.

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EC111Class10Answers - UNIVERSITY OF ESSEX DEPARTMENT OF...

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