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Question
Scenario 2:Sam and Sally are the only consumers in an economy where tee shirts and candy are the only commodities that are consumed. The marginal utility schedule for each appears below.
Sam tee shirts MU(tee shirts) Candy MU(Candy)
1 10 1 6
2 9 2 5
3 8 3 4
4 7 4 5
5 6 5 4
Sally tee shirts MU(tee shirts) Candy MU(Candy)
1 24 1 12
2 19 2 9
3 18 3 8
4 14 4 7
5 10 5 3
There are 7 candies and 7 tee shirts total in the economy.
Consider the case when the goods are redistributed such that Sam has 3 tee shirts and 3 candies. Sally has 4 tee shirts and 4 candies.
Is the current distribution Pareto optimal?
A) Yes.
B) No, as Sam could trade Sally a piece of candy for a tee shirt and both people would be better off.
C) No, as Sam could trade Sally a tee shirt for a piece of candy and both people would be better off.
D) Without the prices of each commodity it is impossible to determine if this distribution is Pareto optimal.
Answer
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