Discussion
Which of the following is shown by the Grand Utility Possibility Frontier ?
Select the correct answer from the codes given below :
(i) The distribution of welfare between individuals
(ii) The Pareto-efficient outputs of two products
(iii) Pareto-efficient allocation of factors into two products
(iv) The Pareto-efficient outputs of more than two products
Answer: D
The answer is (i), (ii) and (iii).
The grand utility possibility frontier is the envelope of the utility possibility curves drawn for every point on the production possibility frontier. Each point on it reflects (iii) a Pareto-efficient allocation of factors between the two products (on the contract curve in production), (ii) the resulting Pareto-efficient outputs of the two products, and (i) a particular distribution of welfare between the individuals.
The standard model has two products, so (iv), outputs of more than two products, is not what the frontier shows; options including (iv) are wrong.
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