ECON 4290 Lecture 2:
15 Jan 2019
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Welfare economics a. pareto optimum: a situation from which any deviation would lead to at least one person worse o . You cannot create the welfare of one person, without worsening another person: pareto improvement: a movement from one situation to another that leaves to at least one person better o and nobody worse o . If people have di erent preferences, not everyone can win. Pc/pf < pc*/pf* (there is room for trade) Here we assume everyone in home country has the same preferences (u (cl, f)) Everyone in the foreign country has the same preferences (u*(cl, f)). Don"t say tastes are di erent but the relatives cost/price are di erent. A: import of food by the home country. Yes, both the home country and the foreign country are better o . Q is pareto optimum. ( remember the assumptions regarding preferences). Suppose 1 individual has di erent preferences from the rest of the population.
