Sherry's utility is (U_{S}) and her income is (Y_{S}). Marsha's utility is (U_{M}) and her income is

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Sherry's utility is \(U_{S}\) and her income is \(Y_{S}\). Marsha's utility is \(U_{M}\) and her income is \(Y_{M}\).

Suppose it is the case that:

\(U_{S}=100 Y_{S}^{1 / 2}\), and \(U_{M}=100 Y_{M}^{1 / 2}+0.8 U_{S}\)

Define the Pareto efficient redistribution, and explain why the concept is relevant in this situation. Suppose that initially Sherry and Marsha both have incomes of \(\$ 100\). Assuming that the social welfare function is additive, what happens to social welfare if \(\$ 36\) is taken away from Marsha and given to Sherry?

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Public Finance

ISBN: 9780073511283

8th Edition

Authors: Harvey Rosen, Ted Gayer

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