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

a. Let the social welfare function be W U U L 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 U L A

c. Assume that the utility possibilities curve is as follows:

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

Transcribed Image Text:

UL UA