Angela works on farmland owned by Bruno. The diagram illustrates their joint feasible frontier. Angela's indifference curves are all assumed to have an identical slope, for any given amount of free time. This means that they are all parallel. Angela and Bruno can bargain costlessly. Bushels of grain 8 12 Angela's reservation indifference curve, IC₁ IC₂ D 0 0 16 Angela's hours of free time 20 24 Feasible frontier: Angela and Bruno combined a) Assume that Angela's reservation option is at point F. Explain the meaning of "Pareto efficient" and give two ways that we know that point F is not Pareto-efficient. Explain why moving between point F and point E would not improve efficiency. (4 marks) b) How might Angela and Bruno achieve a Pareto-efficient outcome? Explain how the negotiation might work. Use indifference curves to show where this outcome will be on the diagram. (3 marks) c) Explain why it would not be Pareto-efficient to simply aim to produce the maximum total amount of grain, for example by moving left from point C. (3 marks) d) Show on a diagram of your own what would happen if grain production technology improved. If Angela's indifference curves are all parallel, what would happen to her choice of working hours? Explain what property of the optimum you have used to work this out. (3 marks)
Angela works on farmland owned by Bruno. The diagram illustrates their joint feasible frontier. Angela's indifference curves are all assumed to have an identical slope, for any given amount of free time. This means that they are all parallel. Angela and Bruno can bargain costlessly. Bushels of grain 8 12 Angela's reservation indifference curve, IC₁ IC₂ D 0 0 16 Angela's hours of free time 20 24 Feasible frontier: Angela and Bruno combined a) Assume that Angela's reservation option is at point F. Explain the meaning of "Pareto efficient" and give two ways that we know that point F is not Pareto-efficient. Explain why moving between point F and point E would not improve efficiency. (4 marks) b) How might Angela and Bruno achieve a Pareto-efficient outcome? Explain how the negotiation might work. Use indifference curves to show where this outcome will be on the diagram. (3 marks) c) Explain why it would not be Pareto-efficient to simply aim to produce the maximum total amount of grain, for example by moving left from point C. (3 marks) d) Show on a diagram of your own what would happen if grain production technology improved. If Angela's indifference curves are all parallel, what would happen to her choice of working hours? Explain what property of the optimum you have used to work this out. (3 marks)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Angela works on farmland owned by Bruno. The diagram illustrates their joint feasible
frontier. Angela's indifference curves are all assumed to have an identical slope, for any
given amount of free time. This means that they are all parallel. Angela and Bruno can
bargain costlessly.
Bushels of grain
8
12
Angela's reservation
indifference curve, IC₁
IC₂
D
0
0
16
Angela's hours of free time
20
24
Feasible frontier: Angela
and Bruno combined
a) Assume that Angela's reservation option is at point F. Explain the meaning of "Pareto
efficient" and give two ways that we know that point F is not Pareto-efficient. Explain
why moving between point F and point E would not improve efficiency. (4 marks)
b) How might Angela and Bruno achieve a Pareto-efficient outcome? Explain how the
negotiation might work. Use indifference curves to show where this outcome will be
on the diagram. (3 marks)
c) Explain why it would not be Pareto-efficient to simply aim to produce the maximum
total amount of grain, for example by moving left from point C. (3 marks)
d) Show on a diagram of your own what would happen if grain production technology
improved. If Angela's indifference curves are all parallel, what would happen to her
choice of working hours? Explain what property of the optimum you have used to
work this out. (3 marks)
AI-Generated Solution
AI-generated content may present inaccurate or offensive content that does not represent bartleby’s views.
Unlock instant AI solutions
Tap the button
to generate a solution
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education