Ans:
an allocation is
pareto optimal
if it is not possible to find another feasible allocation which
both strictly prefer, or at least one person prefers while the other is indifferent between the
second and the first.
Alternatively: not possible to reallocate goods to make one person
better off without making at least on other person worse off.
(3)
If one person has all the fruit, and the other none, then the only feasible way to increase the
utility of the second person is to take some fruit away from the first.
This will raise the utility of
the second, but lower the utility of the first – therefore the initial allocation (all fruit to one
person ) must be
PO. (4)
So long as people are selfish, and non-satiation holds (1 point for selfish, one bonus point for
non-satiation) , this statement is
false.
Economics 203 (F01), 2006; midterm 2
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