Question

Consider an economy with two people (person A and person B) and two goods (goodX and good Y). Person A is endowed with Xunits of good X and no units of good Y.Person B is endowed with Yunits of good Y and no units of good X. Their preferencesover their own consumption are identical and describable with the following utilityfunctions:UX YAAaAb=and UX YBBaBb=(where a>0and b>0)What is the utility possibility frontier?What outcome is preferred by the Rawlsian SWF?What outcome is preferred by the utilitarian SWF?

Answer 1

A.

Utility possibility frontier is the set of all utility pairs $(μX,μY)$

B.

Maximum criterion$=XY$

C.

Sum of individuals utility $=X+Y$