Imagine a simple economy with only two people, Augustus and Livia.

a. Let the social welfare function be

\[ W=U_{l}+U_{A} \]

where \(U_{L}\) and \(U_{A}\) are the utilities of Livia and Augustus, respectively. Graph the social indifference curves. How would you describe the relative importance assigned to their respective well-being?

b. Repeat part \(a\), when \[ W=U_{L}+2 U_{A} \]

c. Assume that the uility possibility curve is as follows:

Graphically show how the optimal solution differs between the welfare functions given in parts \(a\) and \(b\).

Transcribed Image Text:

U UA