Answer to Question #133208 in Economics for ola

Question

Problem 1. Suppose that the following economy consists of two types of people, A and B, with population 100 for each type. Time is infinite and labeled as t = 1, 2, . . . ,∞.

Type A can only work in the even-period while type B can only work in the odd-period.

When they work, they can produce 1 unit of apple. Eating an apple will yield 1 unit of utility. An apple is nonstorable and cannot be divided. Type A value apples more, than Type B in the odd-period, i.e., they want to eat the apple more than Type B do. However, Type B value apples more than type A in the even-period.

(a) How does the socially optimal allocation look like? In the absence of medium of exchange, list the requirements to achieve the optimal allocation.

Answer 1

Economic efficiency is getting the maximum possible benefits from available resources. To do this, you need to behave rationally, i.e. not only constantly correlate benefits (benefits) and costs, but also maximize benefits and minimize costs.

This definition of efficiency is called Pareto optimum, Pareto optimality, Pareto-optimal state. At the same time, there are three necessary conditions for achieving the Pareto-optimal state: first, such a distribution of goods between consumers is required, in which everyone satisfies his consumer needs to the maximum (naturally, within the limits of his solvency);secondly, it is necessary to allocate resources between the production of various goods in such a way that the most optimal use of these resources is achieved (for example, if the efficiency of their use in aircraft construction is higher than in the automotive industry, then more resources should be placed in the production of aircraft than in the production of cars ); thirdly, it is necessary to produce a product in which all production resources are used to the fullest extent (along the border of production possibilities).