Answer to Question #247299 in Microeconomics for Chilu

Question

Imagine an economy that consists of 2 consumers named A and B. Consider the following utility possibilities frontier (UPF).

a.Let the social welfare function be W = UA + UB. Draw the UPF and using this social welfare function, show which allocation(s) maximizes social welfare. How would you describe the relative importance to each individual's respective well-being?

b.Let the social welfare function be W = 10UA + UB. Draw the UPF and using this social welfare function, show which allocation(s) maximizes social welfare. How would you describe the relative importance assigned to each individual's respective well-being?

c.Let the social welfare function be W = min(UA, UB). Draw the UPF and using this social welfare function, show which allocation(s) maximizes social welfare. How would you describe the relative importance assigned to each individual's respective well-being?

Answer 1

a.

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

b.

Welfare function will be steeper. the allocation that will maximize welfare will be one when we give maximum to individual.

c.

To maximize welfare allocation must be such that UA=UB. Since both A and B are important.