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Two people, A and B, are marooned on an island after their airplane crashed. All they...

Two people, A and B, are marooned on an island after their airplane crashed. All they were able to salvage is 100 bags of peanuts. Therefore, you have an economy with two people and one good. Identify all Pareto efficient allocations. Explain your answer.

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Answer #1

The pareto efficiet allocations are defined such that there is no further distribution of goods that can make one person better off without making the other person worse off. Thus every allocation (a, 100-a) is pareto efficient where a [0,100].

Consider for example a=0,

this imply that the allocation is (0,100) such that A gets a and B gets 100. Any deviation from this distribution will hurt B while make A better off. Thus (0, 100) is pareto effiecient.

Likewise for (1, 99), (2, 98), ..., (100, 0).

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