Re: dse entrance 2012 question doubt

Posted by Amit Goyal on Mar 19, 2013; 3:10am
URL: http://discussion-forum.276.s1.nabble.com/dse-entrance-2012-question-doubt-tp7579873p7579879.html

We have
U^a=x+y and U^b=x^2 + y^2 and
endowments are A(2,1) and B(1,2),
two allocations are given,
allocation 1-A(1.5,0) and B(1.5,3) and
allocation 2-A(1.5,1.5) and B(1.5,1.5).
Allocation 2 is not Pareto optimal because there exist a feasible allocation such as A(0,3) and B(3,0) which improves the welfare of B without affecting the welfare of A.
Allocation 1 is Pareto optimal because there is no feasible way to improve on it.