Question

2) Define the following terms and give an example:

a) Pareto efficiency

b) Pareto inefficiency (Discuss why it is inefficient)

c) Ordinal Utility

d) Cardinal Utility (Discuss why this is rarely used)

e) Monotonic Transformation (example below)

f) Necessary good

g)Luxury good

h) Giffen goods

i) Marginal Rate of Substitution

j) Suppose I have a function f(x1, x2) = √ x1 + √ x2 . Using this function provide two examples of monotonic transformations and two examples of 1 transformations that are not monotonic.