Suppose there are two consumers, A and B, and two goods, X and Y. Consumer A vie

Question

Suppose there are two consumers, A and B, and two goods, X and Y. Consumer A views the two goods as perfect complements and has U=min(x, y). Consumer B views the two goods as perfect substitutes and has U=X+Y. There are 20 units of good X and 10 units of good Y available. For each of the following allocations, state TRUE if the allocation is Pareto efficient, and FALSE if it is not. Consumer A gets all of both goods. Consumer B gets all of both goods Consumer A gets 5 units of each good, and consumer B gets 15 units of good X and 5 units of good Y.

Explanation / Answer

Pareto efficient allocation is noone can be made better off without making other worse off.

In i) and ii), consumer A and B are getting all of both the goods. Therefore, it is not pareto efficient as noone is consuming more and making other worse off.

While iii) is pareto efficient .

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