This is the homework on Efficiency and Equity Concepts. It is crucial to understand this stuff as background on the Economics of Organizations. M&R discuss the Efficiency Principle in Chapter 2. It guides economic thinking about organizations. You need to understand what is implied by that principle.
As always, if you have any questions on this assignment, please post them as a comment to this post.
Last year students expressed interest in having some background materials on these matters, either for viewing ahead of time before looking at this homework, or afterward, to see if you were making good sense of the assignment. I last taught intermediate micro in spring 2011. For that offering I did make a lot of content that you are welcome to peruse. If you do access this stuff, I would be interested in learning whether you found it useful.
Partial Equilibrium Approach - Social Surplus
YouTube Videos
Social Surplus Basics
Allocating Surplus in the Presence of a Unit Tax
Allocating Surplus - Monopoly
Excel Workbook
Cost-Benefit Analysis.xlsx
General Equilibrium/Edgeworth Box Approach
YouTube Videos
Welcome and Deconstruction
Barter
Consumer A's Choice
Existence and Uniqueness of Competitive Equilibrium
Pareto Improvement
First and Second Welfare Theorems
Excel Workbook
Edgeworth Box.xlsx
Word Document
Notes on General Equilibrium.docx
I’m having trouble finding the allocation of A at Pareto Optimal allocation for the last question on the homework. I know that the MRS of both A and B must be equal at Pareto Optimal, but I do not know where to go from there in finding the allocation points.
ReplyDeleteYou are right that the two MRS must be the same. The other fact to use is that A's allocation plus B's allocation adds up to the total endowment. If Xtotal is the total endowment of X, then XA + XB = Xtotal.
ReplyDeleteLikewise YA + YB = Ytotal. You can then this two equations to reduce the problem from 4 variables, XA, YA, XB, YB, down to two variables. In other words,you can right B's MRS in terms of A's allocation. Then when you equate the MRS of the two agents, you solve for YA in terms of XA. That is just what you need to answer the question.