Ans: an allocation is pareto optimalif 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 Page 1 of 4
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