437:, as the UPF is a representation of the Pareto contract curve in a different dimension (utilities rather than goods). The UPF is the set of points which, for a given level of utility of person 1, utility of person 2 is maximized (subject to resource availability). Because all points along the UPF represent different real income distributions, all being Pareto efficient, it is difficult to determine which utility combination is preferable to society. Usually, the
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441:, which incorporates the deservedness of the two individuals and states how society’s well-being relates to that of the two individuals, is required to maximize social welfare. It is assumed that the value of social welfare changes as the individual utility of any member of society changes. To maximize social welfare, a point on the UPF would be chosen that also falls on the highest
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386:. The graph shows the maximum amount of one person's utility given each level of utility attained by all others in society. The utility–possibility frontier (UPF) is the upper frontier of the utility possibilities set, which is the set of utility levels of agents possible for a given amount of output, and thus the utility levels possible in a given consumer
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However, based on the extent of society’s preferences for an equal distribution of real income, a point off the curve may be preferred. All points on or below the utility–possibility frontier are attainable by society; all points above it are not attainable. The utility–possibility frontier is
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To graphical construct a utility possibility-frontier, the utility level of consumers are plotted for every Pareto efficient allocation. The frontier is traced from the varying levels of the allocation
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Since, the MRS = MRS along the UPF At
Optimality, along the UPF Thus, as the MRSs must be equal along the UPF, which implies, after some rearrangement, that:
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is often assumed. Cardinal utility implies that consumers can rank their preferences over goods (utility in this case).
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by consumers given an economies' endowment and technology. This means that points on the curve are, by definition,
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As stated above, the slope of the
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The shape of the utility possibility curve is often represented as being concave to the origin, as
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The slope, as seen above, is equivalent to the absolute value of the marginal utilities of y.
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in the image to the right. Meanwhile the points that do not lie on this curve are not
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In a competitive economy, any allocation over the utility–possibility frontier is a
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The process to derive the slope of the
Utility Possibility Frontier.
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may contain excessive or inappropriate references to
703:"Pareto Optimality and Public Goods with Two Agents"
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680:. Oxford: Oxford University Press. p. 429.
468:The two individuals have a utility function of
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