Pareto efficiency in two person

Reference no: EM1315069

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

1. Suppose that Alfred's initial endowment is W_A = (2,8) and Bob's initial endowment is w_B = (*.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 W_A= (8, 2) and Bob's initial endowment is W_B= (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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