Which is the most socially desirable

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Reference no: EM131090332

Humphrey and Lauren are splitting 10 gallons of soda and six pounds of popcorn. Let’s represent Humphrey’s preference with the utility function UH = 3SH + PH and Lauren’s preferences with UL = 2SL + 4PL, where SH and SL indicate their soda consumption, while PH and PL indicate their popcorn consumption. Consider the social welfare function W(UH,UL) = UH + UL. According to this social welfare function, which of the following two allocations is better: (1) SH = 1, SL = 9, PH = 2, and PL = 4, or (2) SH = 5, SL = 5, PH = 3, and PL = 3? Which allocation does each consumer prefer? Considering all possible allocations, which is the most socially desirable? [HINT: How is social welfare affected by shifting a gallon of soda between Humphrey and Lauren? What about a pound of popcorn?]

Reference no: EM131090332

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