Question from Past Microeconomics Qualifying Exam[]

Spring 1999- Section I, Question one, George Mason University

True, False, Uncertain. Determine whether or not each of the following statements are true or false. Explain your reasoning briefly in a paragraph or two. (The explanation is often more important than the answer given). Include a carefully labeled diagram or game matrix if it helps to clarify your answer.

State of the world ‘A’ is Pareto superior to another, state ‘B,’ if and only if all parties strictly prefer A to B.


One allocation is said to be Pareto preferred or Pareto superior to another if at least one party prefers it and the other party likes it at least as well. A pareto-optimal allocation is one for which there is no other feasible reallocation that is preferred by one party and liked at least equally well by the other party. The concept was introduced by the nineteenth-century Italian economist Vilfredo Pareto. In simple terms – a pareto-optimal allocation is one where further mutually beneficial moves are impossible (See Frank p 560, Nicholson p532).

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