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Consider two economies, labelled A and B


Consider two economies, labelled A and B. In each one, let every two- period-lived person be endowed with 20 units of the consumption when young and nothing when old. In Economy A, each young person chooses to consume 10 units of the consumption good. In Economy B, each young person chooses to consume 8 units of the consumption good. In each economy, the young person's choice is the one that maximizes lifetime welfare. 


a. What, if anything, can you infer about the welfare level of the is one on an indifference curve representing greater welfare than 

b. What, if anything can you infer about the welfare of the initial old current and future generations from this information? Specifically the other? from the description given for Economies A and B?

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Answer #1

Ans. a) We can infer that the welfare level of current and future generations in economy A is high because each young person chooses to consume 10 units and it is the choice with maximises lifetime welfare. Economy A represents greater welfare.

b) The welfare of the initial old in economy A is high and Low in Economy B. This assumption is made on the basis of the question as it is mentioned that every two period lived person is endowed with 20 units when young and the choices they make when young are also given.

Do comment if you need further clarification .

Best of Luck !! !!

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