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Distribution of income maximizes social welfare

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Assume that Alegra and Blake are the only two people in an economy and total available income is fixed at $100. Alegra's utility is given by UA = (yA - 20)2/3 where yA is Alegra's income and Blake's utility is UB = (yB - 10)2/3 where yB is Blake's income.

(a) In this case, there is only one condition that a Pareto efficient allocation of income must satisfy. What is it?

(b) What distribution of income maximizes social welfare when the social welfare function is W1 = UA + UB ?

(c) What distribution of income maximizes social welfare when the social welfare function is W2 = 6UA + 3UB ?

(d) What distribution of income maximizes social welfare when the social welfare function is W3 = min(UA,UB)?

Reference no: EM133127049

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