Assume that there are only two goods in the economy: video games and water. The total amount of these goods...

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Assume that there are only two goods in the economy: video games and water. The total amount of these goods are given, there is no production. The world is inhabited by two people: Ann and Bob. Assume that Ann and Bob have regular preferences (not necessarily same for Ann and Bob) over video games and water; and that they have some endowments of these two goods. Now a well-intentioned politician says that because water is scarce and it is a necessity, both Ann and Bob should get half of the overall water resources (and get to consume their respective endowents of video games). Is this likely to be an efficient policy? Use the Edgeworth-box to justify your answer

    • 7 years ago
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