Jack Spratt's Utility Function Is U(F, L)= L

question 47

True/False

Jack Spratt's utility function is U(F, L)= L.His wife's utility function is U(F, L)= F.If Jack's initial endowment is 100 units of F and 50 units of L and if Jack's wife's initial endowment is 60 units of F and 100 units of L, then in an Edgeworth box for Jack and his wife, an allocation of F and L will be Pareto optimal only if it is at a corner of the box.

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Definitions:

Securities

Financial instruments that represent ownership positions in corporations (stocks), creditor relationships with corporations or governmental bodies (bonds), or rights to ownership as represented by an option.

Capital Allocation Line

A line on a graph that shows the risk-reward ratio of portfolios that combine a risk-free asset and a risky portfolio.

Optimal Risky Portfolio

An investment portfolio that offers the highest expected return for a specific level of risk.

Risk-free Rate

The theoretical rate of return on an investment with zero risk, often represented by the yield on government securities.