1. Suppose that the economy consists of four individuals, A, B, and C and D and
ID: 1165466 • Letter: 1
Question
1.Suppose that the economy consists of four individuals, A, B, and C and D and that there are three projects being considered. The net benefits, measured in dollars, received by the three projects are reported in the following Table.
Individual
Projects
1
2
3
A
+5
+5
+2
B
+2
-2
-5
C
+3
+1
-1
D
+1
-3
+2
Which of the projects, if any, can be described as follows?
A Pareto Improvement
A potential (though not an actual) Pareto Improvement
Neither a potential nor an actual pareto improvement.
Individual
Projects
1
2
3
A
+5
+5
+2
B
+2
-2
-5
C
+3
+1
-1
D
+1
-3
+2
Explanation / Answer
Pareto improvement means weare moving from one distribution to another distribution such that one indiviual is better off and no one is worse off.
Since in case of project1 there is possitive net benefits received by all indiviuals. So it is pareto efficient.
Project 2 and project 3 are not Pareto-optimal.
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