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Unformatted text preview: Pareto improvement. L K F=25 MRTS = 2 L K C=5 MRTS = 1/2 Answer key: 1. Yes. Consider an efficient allocation where one person has everything. Then the other person is worse off at this allocation than he would be at an allocation where he has something. 2. No. 3. False. What we know is that production is at PPF, but we don’t the output of each product. 4. Some people are made worse off because of the policy change. 5. The current allocation of labor and capital is not efficient. There are numerous ways to make Pareto improvement. We can move along Food manufacturer’s isoquant by substituting a little bit of labor for capital. We can get a higher level of production for clothing without decreasing the production for food....
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This note was uploaded on 04/15/2010 for the course ECON 290 taught by Professor J liu during the Spring '06 term at Simon Fraser.
- Spring '06
- J Liu