Sep 21, 2017

IMAGINE A HYPOTHETICAL TWO-PERSON ECONOMY INHABITED BY TWO INDIVIDUALS, JOE AND ANTOINE. JOE IS…

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Imagine a hypothetical two-person economy inhabited by two individuals, Joe and Antoine. Joe is very rich and has a high level of utility. Antoine is very poor and has a low level of utility. Joe’s utility level is 500 utils. Antoine’s utility level is 10 utils.

a. Suppose a different production situation in the economy would cause Joe’s utility to rise to 550 utils and Antoine’s utility to rise to 20 utils. Would changing to this new situation be justified by the Pareto efficiency standard? Why or why not?

b. Suppose another production situation in the economy would cause Joe’s utility to fall from 500 utils to 495 utils, while Antoine’s utility would rise from 10 utils to 450 utils. Would changing to this new situation be justified by the Pareto efficiency standard? Why or why not?

c. Suggest a possible reason why Joe might be willing to agree to the production change described in part (b), even though it decreases his utility slightly.


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