ECONOMICS TUTOR HELP PLEASE! (Answer C and D only) There is one good, available
ID: 1202908 • Letter: E
Question
ECONOMICS TUTOR HELP PLEASE! (Answer C and D only)
There is one good, available in unit quantity to be distributed between 2 agents,Andrea and Bob, with utility functions u(x) and v(x) respectively. Let u(x)=x1/3and v(x)=3x. Assume that u and v measure ‘utils,’ a meaningful unit ofinterpersonally comparable utility.
(C) What distribution of the resource is associated with the equal utility allocation?
(D) Calculate the distribution of the resource that a utilitarian would recommend.Explain why the utilitarian allocation gives the ‘needier’ person so little of theresource. Contrast this solution with the allocation of (C).
Explanation / Answer
Individual preference can be modeled in terms of an economic utility function. The ability to sum utility functions of different individuals depends on the utility functions being comparable to each other; informally, individuals' preferences must be measured with the same yardstick. Then the ability to create a social welfare function depends crucially on the ability to compare utility functions. This is called interpersonal utility comparison.
answer c) Te principle of equal utility allocation states that we should not provide any unjustifiable treatment to any of the person i.e. Andrea & Bob as per this question.We must give equal weight to all utilities.
answer d) A utilitarian would recommend that more of the resource or good to be allocated to the one having more utility that is Bob as per this question.
utilitarian allocation gives the ‘needier’ person so little of the source ,reason being the money per unit or dollar per unit is more worth to him rather than spending him because of he being poor.The rich person can spend an extra dollar and buy the product without disturbing his other needs.
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