PROBLEM SET FOR CHAPTER 01

1. Xuan is willing to exchange 3 shirts for a food can without changing her
satisfaction. Whereas, Thu is willing to exchange 2 food cans for 3 shirts. Is this
distribution pattern between shirts and food cans a Pareto efficiency? If not,
why? Can you recommend another distribution pattern to make Xuan better-
off without harming Thu’s well-being? To make Thu better-off without harming
Xuan? Or to make both better-off?

2. To remain level of output in car production industry unchanged, if one unit of

capital is withdrawn, 10 units of labour must be supplemented. However,
withdrawing a unit of labour in cotton production industry must be
compensated by 1/4 unit of capital in order to remain level of output in this
industry unchanged. How to increase level of output in car production without
reducing level of output in cotton production of the economy?

3. An economist observes: “Beer consumption seems to be stagnant. Previously,

if one wishes to consume one can of beer, he must exchange with 3 boxes of
cigarette. At the current time, only one box of cigarette can exchange for a can
of beer. However, the production of the economy has still maintained the
exchange rate of a can of beer for 3 boxes of cigarette”. If this observation is
precise, how the production structure of the economy should be adjusted to
increase social welfare, given the current input endowment