- ANSWER ALL PARTS OF THIS QUESTION CORRECTLY FOR A
BONUS PRIZE -
PLEASE ANSWER THIS IN MINIMUM 1500 WORDS. I WILL UPVOTE FOR
CORRECT ANSWERS!!! PLEASE SEND FASSTT!!! USE GRAPHS TOO! ALL
INFORMATION ADDED. IF YOU NEED ANYTHING ELSE PLEASE WRITE IN THE
COMMENT.
Answer All Parts Of This Question Correctly For A Bonus Prize Please Answer This In Minimum 1500 Words I Will Upvot 1 (146.02 KiB) Viewed 35 times
Answer two questions. If you choose to complete Question 1 you must complete either Question 1A or 18. Question 1A Assume the existence of an economy consisting of identical consumers each with the following utility function: U = x04y0.6. Further suppose there is only one factor of production, Labour (L). It takes 5 units of labour to produce one unit of x and 10 units of labour to produce one unit of y, and there are 1000 units of labour available. Please answer the following questions (using diagrams where appropriate): (i) Write the equation for the Production Possibilities Frontier (PPF) and plot it on a diagram. Why does it have this particular shape, and what factors, in general, will affect the shape of a PPF? (ii) What are the Pareto optimal levels of output of each good? What set of prices will achieve these output levels? (iii) Explain, the implications for Pareto optimality and welfare in the case where good x is produced by a monopolist and good y is produced by firms in a perfectly competitive market. You should include a diagram to illustrate your explanation. (iv) Set out and briefly explain the necessary conditions and assumptions needed to achieve Pareto optimality. Bearing in mind the doubts expressed by Blaug in the quote below, do you think the First and Second Fundamental Welfare theorems have anything useful to offer in terms of policy guidance? "Any doubts about the cogency of the first fundamental theorem are as nothing compared to the widely shared misgivings about the second fundamental theorem. How can something (Second fundamental theorem] that is so patently impractical be a useful reference point?" Blaug, M. (2007), 'The Fundamental Theorems of Modern Welfare Economics, Historically Contemplated, History of political economy, 39 (2): 185-207.
Join a community of subject matter experts. Register for FREE to view solutions, replies, and use search function. Request answer by replying!
(iii) Explain, the implications for Pareto optimality and welfare in the case where good x is produced by a monopolist and good y is produced by firms in a perfectly competitive market. You should include a diagram to illustrate your explanation. (iv) Set out and briefly explain the necessary conditions and assumptions needed to achieve Pareto optimality. Bearing in mind the doubts expressed by Blaug in the quote below, do you think the First and Second Fundamental Welfare theorems have anything useful to offer in terms of policy guidance? "Any doubts about the cogency of the first fundamental theorem are as nothing compared to the widely shared misgivings about the second fundamental theorem. How can something (Second fundamental theorem] that is so patently impractical be a useful reference point?" Blaug, M. (2007), 'The Fundamental Theorems of Modern Welfare Economics, Historically Contemplated, History of political economy, 39 (2): 185-207.