Undervaluing the substitution effect in calculating social welfare costs would overestimate the costs of the new power plant pollution regulation. True False
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- Explain how Hick's Paradox challenges the traditional assumption of monotonicity in consumer preferences and its implications for welfare economics.State the first and second fundamental theorem of welfare economics and outline the fundamental differences in the two theorems.The most general form of a social welfare function (SWF ) can be written as W = W(U1; ... ; UH). a. Explain the following properties that a SWF may satisfy: non paternalism, Pareto principle, anonymity (the names of the agents do not matter), and concavity (aversion to inequality). b. Consider two agents h = 1; 2 with utilities U1 and U2. Depict the social indifference curve of the utilitarian SWF in (U1; U2)-space. Which of the properties in part a does it satisfy? c. Depict the social indifference curves of the maxim in or Rawlins SWF. Contrast to the utilitarian SWF with respect to the aversion to inequality. Which properties does the Rawlins SWF satisfy? d. The Bernoulli-Nash social welfare function is given by the product of individual utilities. Discuss the distributional properties of the Bernoulli-Nash SWF.
- According to the welfare theory covered in the unit, which of the following statements is true? a. A general-equilibrium Pareto-efficient outcome will always be welfare maximising, according to the First Welfare Theorem. b. A general-equilibrium Pareto-efficient outcome will always be welfare maximising, according to the Second Welfare Theorem. c. A general-equilibrium Pareto-efficient outcome may not be welfare maximising, due to lack of equity in the distribution of the resources of an economy. d. A general-equilibrium Pareto-efficient outcome will always be welfare maximising, because all Pareto-efficient outcomes maximise welfare by definition.Person 1 and person 2 are the only two residents of an economy. Person i (where i is either 1 or 2) has the utility function Here, Yi is person i’s income and β is parameter between 0 and 1. Assume that the social welfare function is where α is a parameter between 0 and 1. Initially, person 1’s income is 1 and person 2’s income is 2. a) Express W in terms of Y1 and Y2. If a social indifference curve shows all the pairs (Y1, Y2) that yield the same value of W, what would a social indifference curve look like if it were drawn in the (Y1, Y2) quadrant? Find an algebraic expression for the slope of a social indifference curve. b) Imagine that income redistribution is costless, in the sense that the economy can reach any pair (Y1, Y2) that satisfies the condition Draw a graph of the attainable pairs in the (Y1, Y2) quadrant. This set is called the “utility possibility frontier.” Using this frontier and the social indifference curves,…Tess and Lex earn $40,000 per year and all earnings are spent on consumption (c). Tess and Lex both have the utility function c. Both could experience an adverse event that results in earnings of $0 per year. Tess has a 1% chance of experiencing an adverse event and Lex has a 12% chance of experiencing an adverse event. Tess and Lex are both aware of their risk of an adverse event. Assume the social welfare function is the sum of the Tess’ and Lex’s utility functions. Select the correct statement regarding the explanation for what has happened in the private market and the role of social insurance. a.Adverse section has lead to market failure. The government could improve social welfare by providing full insurance and charging the average of actuarially fair premiums. b.Adverse section has lead to market failure. The government could improve social welfare by providing partial insurance at an actuarially fair premium. c.Moral Hazard has lead to market failure. The government…
- The ‘Rawlsianism’ approach to social welfare improvement is based on a ‘Pareto improvement’ principle. Do you agree? Explain.to what extent is incone in equality a result pf choices made by the individual?The table below is an illustration of Pareto efficiency criterion after the implementation of a state income policy in some selected Ministries . Before policy. After policy Ministry A. 400 800 Ministry B. 200 200 Ministry C . 300 300 Total. 900 1300 With reference to the table, explain Pareto optimality.
- The net welfare effects rate is a. area b + d b. area b + d + e c. area e d. area e - b - dSuppose you were a benign government who wanted to improve Angela’s situation, but withoutsacrificing the aim of Pareto Efficiency. One policy advisor tells you that all you need to do to achievethis is to change Angela’s reservation option. Is this correct? Please explain with all steps the awnser of this questionThe table below is an illustration of Pareto efficiency criterion after the implementation of a state income policy in some selected Ministries . Before policy. After policy Ministry A. 400 800 Ministry B. 200 200 Ministry C . 300 300 Total. 900 1300 Analyse the welfare condition of the Ministries after the income policy.
