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Suppose Fred and Harry find $100 dollars on the street. Describe one allocation of the $100...

Suppose Fred and Harry find $100 dollars on the street. Describe one allocation of the $100 that is Pareto Efficient. Describe one allocation that is not Pareto Efficient.

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Answer #1

A Pareto efficient allocation is when there is no other allocation in which a person can be better off without making another person worse off. In this situation, both persons should divide the money equally as no person has a sole authority over the money as they have not earned it. Hence, it is a Pareto efficient allocation.

Whereas any allocation where the share of one player in the total amount is greater than the other implies person with lower share would try to compete in order to secure a higher share till both get equal shares. hence all such allocations are Pareto inefficient.

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