Welfare economics
Coursework
Note: You are required to submit one piece of coursework for this module, to count
for 20% of your final mark.
Due: 5 p.m., Friday March 4th 2005
Answer all parts of the question. Answers to part 1 (a) – (e) can be submitted on this
sheet. Your answer to part 2 can be written on separate sheets and attached.
This coursework will be marked out of 20. Questions 1 (a) – (e) are worth 3 marks
each [15 marks overall] and question 2 is work 5 marks.
1. Five Edgeworth boxes are provided below. Each box is identical and shows
two possible endowments (a and b) of two goods, X and Y, between two
individuals, A and B. In each part of the question, you are asked to draw a set
of indifference curves, using endowments a and b as reference points, to
demonstrate the particular aspect of the Pareto principle indicated – and to
explain your answer in words. [Note that the indifference curves you draw for
each individual should have the usual properties i.e. be ‘bowed in’ towards the
relevant origin and do not cross.]
(a) Draw a set of indifference curves for A and B such that one
endowment point is Pareto superior to the other, and a move from
one to the other would involve a weak Pareto improvement. In words,
explain which of the points is Pareto superior and which Pareto
inferior, and explain why the shift between the points would be a weak
Pareto improvement.
Person B
Good Y
a
10
b
5
Person A
6
12
Good X
(b) Draw a set of indifference curves for A and B such that one
endowment point is Pareto superior to the other, and a move from
one to the other would involve a strong Pareto improvement. In
words, explain which of the points is Pareto superior and which Pareto
inferior, and explain why the shift between the points would be a
strong Pareto improvement.
Person B
Good Y
a
10
b
5
Person A
6
12
Good X
(c) Draw a set of indifference curves for A and B such that a and b are
Pareto indifferent. Explain in words what Pareto indifference means
for the social ranking of a and b.
Person B
Good Y
a
10
b
5
Person A
6
12
Good X
(d) Draw a set of indifference curves for A and B such that points a and b
are Pareto non-comparable, and at least one endowment is not
Pareto optimal. Explain in words what non-comparability means.
Person B
Good Y
a
10
b
5
Person A
6
12
Good X
(e) Draw a set of indifference curves for A and B such that points a and b
are Pareto non-comparable, and both endowments are Pareto
optimal. What does this imply about the preferences of A and B with
respect to goods X and Y? What does your answer suggest about the
contract curve?
Person B
Good Y
a
10
b
5
Person A
6
12
Good X
2. What are the strengths and limitations of the Pareto principle as a basis for social
choices?
Note:
 The word limit and submission date should be strictly observed.
 Please hand in your completed coursework, together with a coversheet, to the
School of Social Sciences Building.
 If you have any enquiries about the coursework for this module, please contact
me at: n.j.devlin@city.ac.uk