Asked by
Okiany Riches
on Oct 25, 2024
Verified
Refer to Scenario 16.1. Suppose instead that Sam is initially allocated 3 cheese doodles and 3 pretzels, whereas Sally is initially allocated 6 cheese doodles and 10 pretzels. Which of the following statements is TRUE?
A) This allocation is Pareto optimal.
B) This allocation is not Pareto optimal as Sally and Sam have unequal amounts of each good.
C) The allocation is not Pareto optimal as Sally would be willing to exchange two pretzels for one cheese doodle and be better off, without making Sam worse off.
D) The allocation is not Pareto optimal as Sam would willing exchange one pretzel for two cheese doodles and be better off, without making Sally worse off.
Pareto Optimal
A state of allocation of resources from which it is impossible to reallocate so as to make any one individual or preference criterion better off without making at least one individual or preference criterion worse off.
Marginal Rate
The rate at which one variable changes with respect to a minute change in another variable.
Cheese Doodles
A popular snack food made from cornmeal, cheese coating, and often baked or fried.
- Understand the concepts and implications of Pareto optimality in different allocation scenarios.
- Apply the concept of marginal substitution rates in understanding consumer preferences and optimal allocations.
Verified Answer
DM
Learning Objectives
- Understand the concepts and implications of Pareto optimality in different allocation scenarios.
- Apply the concept of marginal substitution rates in understanding consumer preferences and optimal allocations.