10 Questions
What happens to the utility of consumer A and B as we move from a to b to c?
Utility of consumer A increases, while that of B decreases.
What is the significance of the points along the utility possibility frontier (UPF)?
All points along the UPF are Pareto efficient.
What is the condition for welfare to increase according to the Pareto criterion?
If it is possible to increase the utility of one individual without decreasing the utility of the other.
What is the limitation of the Pareto criterion?
It avoids interpersonal comparisons of utility.
What is the principle behind the Kaldor-Hicks criterion?
The compensation principle, which states that a change is an improvement if those who gain can fully compensate the losers and still retain some gain.
Why is the Kaldor-Hicks criterion used?
To overcome the limitation of the Pareto criterion.
What happens to the utility of individual B when moving from point Q to a on the UPF?
The utility of individual B increases.
What happens to the utility of individual A when moving from point Q to c on the UPF?
The utility of individual A increases.
What is the significance of point Q on the UPF?
It is a point inside the UPF, indicating that there is room for improvement.
What is the utility possibility frontier (UPF)?
A graphical representation of the utility of two individuals.
Understand the concept of production possibility frontier, a graphical representation of the various combinations of two goods that can be produced given the country's resources. Analyze the production points and the allocation of resources. Learn how to interpret the graph and make informed decisions.
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