(a) With a welfare maximisation model and an Edgeworth box, explain the following statement on Pareto efficiency (10 Marks):

"An economy can be optimal in this sense even when some people are rolling in luxury and others are near starvation as long as the starvers cannot be made better off without cutting into the pleasures of the rich. . . . In short, a society or an economy can be Pareto-optimal and still be perfectly disgusting."

Sen (1970), Nobel laureate in economics.

Reference: Sen, Amartya, 1970. Collective Choice and Social Welfare, San Francisco:Holden-Day.

(b) Using different welfare functions, explain why an allocation of resources that is welfare-maximising for a society may not be welfare-maximising for another society. Also, explain how Gini index coefficients can be used as a proxy for society's preferences. (10 Marks)

(c) Conclude your previous discussions with some analysis of income-redistribution policies. Is there any economic theoretical justification for such policies? (10 Marks)