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Problem Set. Chapter 01

This document contains 3 economics problems related to production, exchange rates, and social welfare. Problem 1 asks if a given exchange rate of shirts and food cans between two individuals represents Pareto efficiency, and if not, how the distribution could be adjusted to make one or both individuals better off. Problem 2 asks how to increase car production without reducing cotton production given input requirements. Problem 3 observes that beer consumption is stagnant despite a changing exchange rate with cigarettes, and asks how the production structure should be adjusted to increase social welfare given current input endowments.

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66 views

Problem Set. Chapter 01

This document contains 3 economics problems related to production, exchange rates, and social welfare. Problem 1 asks if a given exchange rate of shirts and food cans between two individuals represents Pareto efficiency, and if not, how the distribution could be adjusted to make one or both individuals better off. Problem 2 asks how to increase car production without reducing cotton production given input requirements. Problem 3 observes that beer consumption is stagnant despite a changing exchange rate with cigarettes, and asks how the production structure should be adjusted to increase social welfare given current input endowments.

Uploaded by

Vân Cẩm
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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PROBLEM SET FOR CHAPTER 01

1. Xuan is willing to exchange 1 shirt for 3 food cans without changing her
satisfaction. Whereas Thu is willing to exchange 3 food cans for 2 shirts. Is this
distribution pattern between shirts and food cans a Pareto efficiency? If not,
why? Can you recommend another distribution pattern to make Xuan better-
off without harming Thu’s well-being? To make Thu better-off without harming
Xuan? Or to make both better-off?

2. To remain level of output in car production industry unchanged, if one unit of


labor is withdrawn, 10 units of capital must be supplemented. However,
withdrawing a unit of capital in cotton production industry must be
compensated by 1/4 unit of labor in order to remain level of output in this
industry unchanged. How to increase level of output in car production without
reducing level of output in cotton production of the economy?

3. An economist observes: “Beer consumption seems to be stagnant. Previously,


if one wishes to consume one can of beer, he must exchange with 3 boxes of
cigarette. At the current time, only one box of cigarette can exchange for a can
of beer. However, the production of the economy has still maintained the
exchange rate of a can of beer for 3 boxes of cigarette”. If this observation is
precise, how the production structure of the economy should be adjusted to
increase social welfare, given the current input endowment

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