Exam 3: Tools of Normative Analysis

Consider a simple exchange economy where the marginal rate of transformation between two goods is greater than the marginal rate of substitution for the same goods.Can Pareto equilibrium be derived?

The marginal rate of substitution is

If James has a utility curve characterized by the function of U = 2X³ Y²,what is his marginal rate of substitution between goods X and Y?

Why might asymmetric information contribute to the problem of a market failure?

Movement from an inefficient allocation to an efficient allocation in the Edgeworth Box will

Merit goods

Externalities can be difficult to detect in open economies.

Normative economics

A utility possibilities frontier need not incorporate the utility of every individual.

A social welfare function

Pareto improvement can be a reallocation of resources that makes more than one person better off.

Merit goods have received considerable attention toward the end of this chapter.Can concerts and other publicly provided services be rationalized using these ideas?

The Utility Possibility Frontier is derived from utility curves.

Welfare economics is concerned with individual desirability of alternative economic states.