Pareto Efficiency

Question 1

Definition

Answer 1

Pareto efficiency is the state in which it is impossible to make someone better off without making someone worse off.

Question 2

Edgeworth box

Answer 2

all possible allocations of either two goods between two people or two inputs between two production processes.

Question 3

endowment

Answer 3

an initial allocations of goods

Question 4

Assumptions about behaviour

Answer 4

Utility maximisation, usual-shaped indifference curves, nonsastiation, no independence

Question 5

Contract Curve

Answer 5

representing final allocations of goods that could occur as a result of mutually beneficial trading - they are pareto efficient because at the point tangent to the isoquant the persons utility is maximised.

Question 6

first theorem welfare

Answer 6

tends towards competitive EQUILIBRIUM - weakly pareto optimal when maintains the following, price taking behaviour, complete market and local nonsatiation of preferences.

Question 7

PPF

Answer 7

if an economy is pareto efficient , individuals are maximising utility.