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why the Clarke-Groves mechanism leads to truth telling 4 3. This
question refers to moral hazard and adverse selection
(a) Explain and give examples of moral hazard and adverse selection
(b) Why do moral hazard and adverse selection cause the failure of
the first fundamental theorem of
welfare economics? (c) Can you suggest any solutions to moral
hazard and adverse selection problems 5 4. This question refers to the
Bergson-Samuelson social welfare function
(a) State and explain the conceptual basis of the Bergson-Samuelson
social welfare function (b) Draw a diagram and use it to explain why
a Bergson-Samuelson social welfare optimum will be
Pareto efficient 6 (c) If an economy is at a Bergson-Samuelson social
welfare optimum will there be efficiency in production? Explain (d) If
economic allocations are not Pareto efficient does it make sense to use
a Bergson-Samuelson
social welfare function to evaluate them? Discuss 7 Bonus Question:
This question is worth 15 extra credit points and is evaluated on the
math
Two individuals A and B have the following preference over two
goods x and y
uA = u(xA , y A , xB )
uB = u(xB , y B , xA )
Where xA + xB = x and y A + y B = y and the budget constraints are I
A = xA + y A and I A = xA + y A
¯
¯
(a) Derive the conditions for Pareto efficiency (b) Show that the
market equilibrium cannot be Pareto efficient 8
g.
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ENG 100A Summary for “Stone Soup”
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Summary for ―Stone Soup‖ by Barbara Kingsolver After reading and
annotating ―Stone Soup,‖