DSE 2012 Doubt...!!!!

[Granpa Simpson]

The answer to Q27 says bundle 1 is Pareto Optimum...how can it be the answer when in allocation 1 Agent A is worse off than the endowment bundle...in case of the endowment bundle the Utility of A=2+1=3, while for the allocation 1 it turns out to be 1.5..plz help..shudnt the answer be c, because in bundle 2, Agent is worse off than the initial endowment bundle...somebody plz help..thanx in advance..!!!!

[hs]

utility of B is increasing at the expense of A so pareto opimality still holds
and the pareto optimal allocations are corner points becoz of subtitute and concave utility preferences
ans is option c only

[kangkan]

My ans key says it option c..only allocation 1 is pareto optimal

[Granpa Simpson]

Sorry i meant b.

[kangkan]

subh...one person has concave preferences..hence it will have to be a border solution...and morever allocation cannot be pareto optimal..for example if they trade to (3,0) and (0,3)...agent 1's is on the same indiffcurve..but agent 2's utility increase from 4.5 to 9..hence there is a way to make some one better off without making the other worse off..hence not pareto optimal

[Granpa Simpson]

Yes its absolutely okk...actually my mind was pre occupied with Competitive Equilibrium allocation...nywa thanx to both Kangkan and Himashu..!!!