Pareto efficiency in two person

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Reference no: EM1315069

Consider the following two good pure exchange economy: Alfred's utility function is UA(x, y) = min{x, y} and Bob's utility function is UB(x, y) = max{x, y}.

1. Suppose that Alfred's initial endowment is WA  = (2,8) and Bob's initial endowment is wB = (*.2). If there is any, give an example to an allocation which is feasible but NOT Pareto Efficient. Explain why it is not Pareto Efficient.

2. Suppose now that Alfred's initial endowment is WA = (8, 2) and Bob's initial endowment is WB= (2,3). If there is any, give an example to an allocation which is feasible but NOT Pareto Efficient.

(Hint: No calculation is necessary. Just use the definition of Pareto Optimality and properties of the utility functions.)

Reference no: EM1315069

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