True or false: If two consumers both view X and Y as perfect substitutes and both...

True or false: If two consumers both view X and Y as perfect substitutes and both consumers like an additional unit of X better than an additional unit of Y, then it is impossible for them to make a Pareto-improving trade away from their initial endowment. Explain.

Solutions

Expert Solution

The given statement is True

The reason is that an additional unit of X would make both of them better off. So, the one who gives up that additional unit becomes worse off. Pareto improving trade is the one in which exchange happens such that nobody is worse off but someone becomes better off. This situtaion cannot be improved further because benefitting one of the consumers would lead to a loss for the other.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

A utility-maximizing consumer believes two goods are Perfect Substitutes u(x, y) = 3x + 4y. She...

A utility-maximizing consumer believes two goods are Perfect Substitutes u(x, y) = 3x + 4y. She pays pY = 2 and pX = 1. Her income is m = 24. Next month the price of good x will rise to pX = 3. Round your final answers to 3 decimal places. What is the EV, CV and Approximate ΔCS?

If two goods are perfect substitutes, both goods are produced with increasing marginal cost, and for...

If two goods are perfect substitutes, both goods are produced with increasing marginal cost, and for some reason the marginal cost of producing one of the two goods go up, but the marginal cost of producing the other good stay the same, what is the effect on the equilibrium prices of the two goods? Explain your answer carefully.

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

Suppose there are two consumers, A and B, and two goods, X and Y. The consumers have the following initial endowments and utility functions: W X A = 2 W Y A = 9 U A ( X , Y ) = X 1 3 Y 2 3 W X B = 6 W Y B = 2 U B ( X , Y ) = 3 X + 4 Y Suppose the price of X is PX=2 and the...

Problem 2. Consider the linear (perfect substitutes) production function f(x, y) = 12.7x + 19.4y. (A)...

Problem 2. Consider the linear (perfect substitutes) production function f(x, y) = 12.7x + 19.4y. (A) How many units of good y would be a perfect substitute for 1 unit of good x? What is the slope of the firm’s isoquants? (B) Suppose the input prices are (px, py) = (5, 8). What is the slope of the isocost lines? How much output does the firm get when it inputs $1 worth of good x? How much output does the...

If the two inputs are perfect substitutes, then the isoquants are: a) convex to the origin....

If the two inputs are perfect substitutes, then the isoquants are: a) convex to the origin. b) concave to the origin. c) linear and down-sloping. d) " L " shaped. e) inverse U-shape parabola.

Suppose that there are two consumers A and B and two products x and y. The...

Suppose that there are two consumers A and B and two products x and y. The initial endowment W is such that consumer A is endowed with (WXA, WYA) = (1,8) and consumer B is endowed with (WXB, WXB) = (8,27). Both consumers have standard preferences, and their utility functions are the same and equal to UA(xA, yA) = xA * yA2 UB(xB, yB) = xB * yB2. Question 1 -a Determine consumer A and B’s utility at their initial...

When genes are on the X or Y chromosomes, they are considered X-linked. True or false?

(True or False) Monopolists are neither productively efficient nor allocative efficient, and perfect competition is both...

(True or False) Monopolists are neither productively efficient nor allocative efficient, and perfect competition is both productively efficient and allocatively efficient. However, Pareto optimal requires it is impossible to make one person better off without making at least one other worse off. And expalin why

13. The utility function of consumers who spend both their income and buy X and Y...

13. The utility function of consumers who spend both their income and buy X and Y goods was given U=XY. (U is the size of utility, X is the consumption of X material, Y is the consumption of Y goods) The consumer's income is 100, and the prices of X and Y goods are initially 2 and 10. If the price of X material rises from 2 to 8, what is the compensation income for this change (the minimum income...

T/F and why(true/false)? (Part a) If the partial derivatives fx(x,y), fy(x,y) exists for all values x,y...

T/F and why(true/false)? (Part a) If the partial derivatives fx(x,y), fy(x,y) exists for all values x,y ,then f(x,y) is continuous. (Part b) Suppose f(x,y) is a function which is differentiable and nonnegative everywhere, and is zero at the origin ,f(x,y) ≥ 0, f(0,0) = 0.Then the gradient vector is zero at the origin is,∇f(0,0) = (0,0). (Part c) If F(x,y) is continuous on the entire plane, then there is a function f:R→R satisfying f′(x) =F(x,f(x)), f(0) = 0 for all...

Subjects