Solution-Distribution of income maximizes social welfare

Distribution of income maximizes social welfare

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Reference no: EM133127049

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 U_A = (y_A - 20)^2/3 where y_A is Alegra's income and Blake's utility is U_B = (y_B - 10)^2/3 where y_B 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 = U_A + U_B ?

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

Reference no: EM133127049

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Distribution of income maximizes social welfare

Reference no: EM133127049

Reference no: EM133127049

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