Pareto Efficiency

Topics: Economic efficiency, Pareto efficiency, Health care Pages: 3 (433 words) Published: March 26, 2014
Question 3)

a.Since the heirloom cannot be split, then the two Pareto efficient outcomes are that either Arun receives the heirloom (Arun $25, Beena $0) or Beena receives the heirloom (Beena $1, Arun $0). b.If you allow for monetary side payments, then the Pareto efficient outcomes can be seen in the chart below:

BeenaArun
025
124
223
322
421
520
619
718
817
916
1015
1114
1213
1312
1411
1510
169
178
187
196
205
214
223
232
241
250

Question 4)

a.For the Union, it is preferable to have a high health care over a high pension. For management, it is preferable to have a low health care over low pension. Intuitively, this means that an efficient agreement would be to have high health care and low pension. b.

Pension Health CareUnionManagementPareto
LowLow03Yes
LowHigh152Yes
High Low51No
HighHigh200Yes

Option three, high pension and low health care is Pareto inefficient. You can see that visually in the graph (it is below the line of efficiency) and in the chart as well. It is Pareto efficient because both parties stand to gain from an alternative- the union would gain ten points if they moved to low pension and management would gain one.

c.As you can see, the Pareto efficient agreements do not change. This is because the preferences didn’t change per say, just the scale of the preferences. Just as in part b, high pension- low health care is Pareto inefficient because both groups would gain from moving to low pension- high health care.

Pension Health CareUnionManagementPareto
LowLow030Yes
LowHigh1520Yes
High Low510No
HighHigh200Yes

Level of technological supportTimingGuaranteeNorthstarGeneral Data SystemsPareto Efficient? S1I18Yes530160N
S1I18No420260Y
S1I24Yes250300Y
S1I24No0440Y
S2I18Yes670100N
S2I18No560200Y
S2I24Yes370230N
S2I24No120370Y
S3I18...
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