Asked by
Maria Gonzalez
on Oct 14, 2024
Verified
Jack Spratt's utility function is U(F, L) L.His wife's utility function is U(F, L) F.If Jack's initial endowment is 10 units of F and 5 units of L and if Jack's wife's initial endowment is 6 units of F and 10 units of L, then in an Edgeworth box for Jack and his wife, an allocation of F and L will be Pareto optimal only if it is at a corner of the box.
Utility Function
A representation in economics that captures a consumer's preference by assigning a utility value to different bundles of goods.
Pareto Optimal
A condition in resource allocation where it's unachievable to improve the standing of any party without detrimentally impacting another party or criterion of choice.
Endowment
The total resources available to an individual or entity, including assets, income, and wealth.
- Understand the concept of Pareto optimality in different economic scenarios.
- Recognize how different utility functions affect economic outcomes in a pure exchange economy.
Verified Answer
KD
Learning Objectives
- Understand the concept of Pareto optimality in different economic scenarios.
- Recognize how different utility functions affect economic outcomes in a pure exchange economy.