Answer to Question #158644 in Economics for Muhammad taha

Question

Consider a social interaction between two economic agents. There are five possible

allocations out of this interaction (payoffs in parenthesis): A = (50,1), B: (1,50), C

(49, 49), D: (49, 48), E: (0,50). Identify the Pareto-efficient allocations. For each

Pareto-inefficient allocation, identify allocations that Pareto-dominate it.

Answer 1

If there are five possible allocations out of interaction: A = (50,1), B: (1,50), C(49, 49), D: (49, 48), E: (0,50), then the Pareto-efficient allocation is C, because it leads to fair distribution of income. Pareto-dominating outcomes for A, B and E are C and D, because they provide Pareto improvement.