ECO2101 General Equilibirum and Welfare (6)

Question 1

What is equity in welfare economics?

Answer 1

The fairness in the distribution of economic resources and well being

Question 2

what is horizontal and vertical equity?

Answer 2

Horizontal - identical treatment
Vertical - different treatment

Question 3

What is pareto efficiency?

Answer 3

It is impossible to move to another allocation which would make some people better off and nobody worse off

Question 4

How do we represent Pareto efficiency

Answer 4

with a ppf
all points on are pareto-efficient
points beyond are non-feasible
points within are pareto-inefficient

Question 5

Draw a ppf for pareto efficiency (q2,q1) goods person 1 and 2

Answer 5

ppt 57

Question 6

What does p equal and what does this mean for goods worth $5 and $10

Answer 6

p = marginal utility (MU)

Question 7

Where do firms produce

Answer 7

at price p = MC

Question 8

In competitive markers what do we assume about wages (goods x and y )

Answer 8

that wx+wy=w
Migration of workers between industries creates equal wages

Question 9

In equilibrium what does w/MP(L) equal?

Answer 9

MC=w/MPL

Question 10

How would you equate the MP(L) for two goods where the MC of one is 5 and the other 10

Answer 10

check ppt 58