Question

Evaluate whether the statement is true or false. Explain why.

a. Every point on production possibility frontier (PPF) is Pareto efficient.

b. Every Pareto efficient allocation is represented as a point on a utility possibility frontier (UPF).

c. If outcome is chosen by Rawlsian social welfare function, sum of utilities will be maximized.

d. In pure exchange, the outcome where one consumer has everything is not Pareto efficient.

Answer 1

A) true

Yes, every point on PPF is Pareto optimal.

Bcoz each Production allocation is efficient, as if one good Production rises, then the Production of the other good has to be given up

B) True

Every point on UPF is Pareto optimal,

C) False.

Rawlsian social welfare function = Min { U1, U2, U3, U4, .........}

Social welfare depends upon the welfare of the worst off individual.

Thus sum of utilities is not maximized .

D) false

Even if one individual has all of one good, then it is Pareto optimal allocation