Answer to Question #247295 in Microeconomics for Chilu

Question

A society consists of two people with utilities U1 and U2, and the social welfare function is W = à ƒ Ž ±1U1 + à ƒ Ž ±1U2. Draw a utility possibility frontier similar to the ones in Figure 10.9. When social welfare is maximized, show that as à ƒ Ž ±1/à ƒ Ž ±2 increases, Person 1 benefits and Person 2 is harmed

Answer 1

a.

The welfarre function is the utilizaion type i.e $w=\sum U_i$

slope of line = 1

The allocation that will maximize is the midpoint of the line, since each individual are equally important so the utility level of each individual will increase the welfare of the society.

b.

Now the welfare function will be steeper from one shown. The allocation that will maximize welfare will be one where person 1 is given maximum as the attached weight is higher.