Two Individuals $\mathrm { A }$ And $\mathrm { B }$ , Consume Two Goods

question 44

Multiple Choice

Two individuals, $\mathrm { A }$ and $\mathrm { B }$ , consume two goods, $x$ and $y$ . Consumer $\mathrm { A }$ initially has 3 units of $x$ and 2 units of $y$ . Consumer B initially has 5 units of $x$ and 6 units of $y$ . Also, for Consumer A the $M R S _ { x , y } ^ { A } = \frac { 5 x } { 3 y }$ and for Consumer $\mathrm { B }$ the $M R S _ { x , y } ^ { B } = \frac { 3 x } { y }$ . Does this initial allocation of $x$ and $y$ represent an efficient allocation?

• A) Yes
• B) No, because both consumers could be made better off by giving A more \(x\) and less \(y\).
• C) No, because both consumers could be made better off by giving A more \(y\) and less \(x\).
• D) Cannot be determined from the given information.

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Definitions:

Expected Dividend

The forecasted payment of dividends to shareholders, based on a company’s past dividend history and future earnings projections.

Semistrong Efficient

This term refers to a form of market efficiency that assumes all publicly available information is already reflected in stock prices, including historical and fundamental data.

Strong-Form Efficient

A state of market efficiency where all information, public and private, is accounted for in stock prices.

SML

Security Market Line, a graphical representation that shows the expected return of a security or portfolio as a function of its beta (systematic risk).