Suppose That in Problem 8, Mutt's Utility Function Is U(m

question 1

Multiple Choice

Suppose that in Problem 8, Mutt's utility function is U(m, j) = max{ 4m, j} and Jeff's utility function is U(m, j) = 3m + j. Mutt is initially endowed with 6 units of milk and 2 units of juice, and Jeff is initially endowed with 2 units of milk and 6 units of juice. If we draw an Edgeworth box with milk on the horizontal axis and juice on the vertical axis and if we measure goods for Mutt by the distance from the lower left corner of the box, then the set of Pareto optimal allocations includes the

• A) right edge of the Edgeworth box but no other edges.
• B) left edge of the Edgeworth box but no other edges.
• C) bottom edge of the Edgeworth box but no other edges.
• D) left edge and bottom edge of the Edgeworth box.
• E) right edge and top edge of the Edgeworth box.

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Definitions:

Taxable Income

The portion of an individual's or organization's income that is subject to taxation by governing authorities.

Horizontal Equity

Horizontal equity is a principle in taxation that dictates that individuals with similar income and assets should pay the same amount in taxes.

Vertical Equity

A principle in taxation that individuals with a higher ability to pay should contribute more taxes.

Progressivity

Refers to a tax system in which the tax rate increases as the taxable amount increases.