<p>The following plot has the answer to your question, observe it carefully:
<a href="https://i.sstatic.net/7BHQ2.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/7BHQ2.png" alt="enter image description here"></a></p>

CC BY-SA 3.0
2017-04-14T07:34:46.123Z
2017-04-14T07:34:46.123Z
Amit
<p>A parateo optimal solution can be found setting</p>

<p>$$MRS_1=MRS_2$$ </p>

<p>and then solving for $a$</p>

<p>We know, that $MRS_1=$ $MU_{x_1}\over{MU_{x_2}}$ $=$ $\partial U_1 \over{\partial x_1}$$\div$ $\partial U_1\over\partial x_2$ $=$ $a\over1$ $=a$</p>

<p>and  similarly $MRS_2=$ $MU_{y_1} \over{MU_{y_2}}$ $=$ $y_2\over{y_1}$</p>

<p>now plug in endowment values respectively which gives</p>

<p>$$a= {5\over{1}} \Longrightarrow a=5$$</p>

<p>$\therefore$ the above allocation is pareto optimal when $a=5$</p>

CC BY-SA 3.0
2017-04-13T21:46:49.817Z
$$MRS_1=MRS_2$$ is only required in interior points. The allocation given in the question is not an interior point.
Giskard
CC BY-SA 3.0
2017-04-13T22:26:54.180Z
@denesp the question cited is talking about envy free allocation and I'm giving the answer for Pareto optimal
Bensstats
CC BY-SA 3.0
2017-04-14T07:51:22.647Z
So am I. Consider the extreme example of $U_A(x_1,x_2) = 2x_1 + x_2$ and $U_B(x_1,x_2) = x_1 + 2x_2$. The allocation where $A$ gets (1,0) and $B$ get (0,1) is clearly PO but $MRS_A = 2 \neq 1/2 = MRS_B$. The same will be true in some cases in this question.
Giskard
CC BY-SA 3.0
2017-04-14T07:52:12.753Z
At the corner, condition for Pareto optimality is MRS $ = a\geq 5$. Refer to my answer for the picture proof: https://economics.stackexchange.com/a/16270/11824
Amit
CC BY-SA 3.0
2017-04-13T19:47:01.210Z
2017-04-13T19:47:01.210Z
Bensstats
<p>Suppose there are 2 individuals in a simple exchange economy with utilities $U_{1}= ax_{1} + x_{2}$ and $U_{2}= y_{1}y_{2}$. </p>

<p>Endowments are $(x_{1},x_{2})=(4,0)$ and $(y_{1},y_{2})=(1,5)$.</p>

<p>We are asked the values of $a$ such that the above allocation is pareto optimal.</p>

<p>The answer as given is $MRS_{A} \ge MRS_{B}$ implies pareto optimal. </p>

<p>How did we arrive here?</p>

<p>URL for reference: <a href="http://www.econschool.in/stuff-of-interest/anotherpost/dse-2013-q34" rel="nofollow noreferrer">http://www.econschool.in/stuff-of-interest/anotherpost/dse-2013-q34</a></p>

<p>URL for actual problem: <a href="http://www.econschool.in/stuff-of-interest/anotherpost/dse-2013-q34" rel="nofollow noreferrer">http://www.econschool.in/stuff-of-interest/anotherpost/dse-2013-q34</a></p>

CC BY-SA 3.0
2017-04-13T18:07:09.150Z
Have you tried to understand how to derive the answer?
Herr K.
CC BY-SA 3.0
2017-05-12T03:50:47.920Z
@denesp I wonder why this post is voted to close as off-topic when the one who posted the question has mentioned the source of the problem which contains both the answer and the question, and the intention of the poster is to clarify his doubts - clearly indicating it is not a homework question and the intention of the poster is not to cheat but to understand.
Amit
CC BY-SA 3.0
2017-05-14T20:48:41.707Z
@Amit I did not get a notification of this comment, I guess because I did not post anything under this question. As it has been explained by others on [meta](https://economics.meta.stackexchange.com/questions/1697/why-is-the-question-intended-to-understand-a-concept-and-was-not-a-homework-ques) "how" is not a very clear question. As a side note: Disclosing your [conflicts of interest](http://www.econschool.in/contact) would be nice when launching such a petition.
Giskard
CC BY-SA 3.0
2017-05-16T06:04:33.300Z
I only posted this because I wanted to understand how we arrived at the solution. I already had the solution but had no idea of the underlying concept. The solution does not help me in any way in the sense that I'm not an economics student and hence wasn't giving any test etc. At that point of time. @Amit thank you for the elegant solution. Drawing ICs in the edgeworth box is a beautiful way to solve. And I cannot get more detailed than "how", because solution is just one line. There's no part of solution I can specifically point out that I didn't understand.
Arshdeep
CC BY-SA 3.0
2017-06-06T03:28:18.443Z
With regards to reopening the question, I think that this one is a close one. However, I think that the OP should explain which part of the answer they don't understand. Otherwise, the answer posted here might just restate the provided answer.
jmbejara
<pareto-efficiency>
How do we find pareto optimal points in a 2 goods simple exhange economy?
Arshdeep
# How do we find pareto optimal points in a 2 goods simple exhange economy?

(Asked by: username_0 on 2017-04-13)

Suppose there are 2 individuals in a simple exchange economy with utilities $U\_{1}= ax\_{1} + x\_{2}$ and $U\_{2}= y\_{1}y\_{2}$.

Endowments are $(x\_{1},x\_{2})=(4,0)$ and $(y\_{1},y\_{2})=(1,5)$.

We are asked the values of $a$ such that the above allocation is pareto optimal.

The answer as given is $MRS\_{A} \ge MRS\_{B}$ implies pareto optimal.

How did we arrive here?

URL for reference: <http://www.econschool.in/stuff-of-interest/anotherpost/dse-2013-q34>

URL for actual problem: <http://www.econschool.in/stuff-of-interest/anotherpost/dse-2013-q34>

**Tags:** pareto-efficiency

> **Comments:**
> **username_1**: Have you tried to understand how to derive the answer?  
> **username_2**: @denesp I wonder why this post is voted to close as off-topic when the one who posted the question has mentioned the source of the problem which contains both the answer and the question, and the intention of the poster is to clarify his doubts - clearly indicating it is not a homework question and the intention of the poster is not to cheat but to understand.  
> **username_3**: @username_2 I did not get a notification of this comment, I guess because I did not post anything under this question. As it has been explained by others on [meta](https://economics.meta.stackexchange.com/questions/1697/why-is-the-question-intended-to-understand-a-concept-and-was-not-a-homework-ques) "how" is not a very clear question. As a side note: Disclosing your [conflicts of interest](http://www.econschool.in/contact) would be nice when launching such a petition.  
> **username_0**: I only posted this because I wanted to understand how we arrived at the solution. I already had the solution but had no idea of the underlying concept. The solution does not help me in any way in the sense that I'm not an economics student and hence wasn't giving any test etc. At that point of time. @username_2 thank you for the elegant solution. Drawing ICs in the edgeworth box is a beautiful way to solve. And I cannot get more detailed than "how", because solution is just one line. There's no part of solution I can specifically point out that I didn't understand.  
> **username_4**: With regards to reopening the question, I think that this one is a close one. However, I think that the OP should explain which part of the answer they don't understand. Otherwise, the answer posted here might just restate the provided answer.  

---

## 2 answers

### Answer by username_2 on 2017-04-14. Score: 4

The following plot has the answer to your question, observe it carefully:
[![enter image description here](https://i.sstatic.net/7BHQ2.png)](https://i.sstatic.net/7BHQ2.png)


---

### Answer by username_5 on 2017-04-13. Score: 0

A parateo optimal solution can be found setting

$$MRS\_1=MRS\_2$$

and then solving for $a$

We know, that $MRS\_1=$ $MU\_{x\_1}\over{MU\_{x\_2}}$ $=$ $\partial U\_1 \over{\partial x\_1}$$\div$ $\partial U\_1\over\partial x\_2$ $=$ $a\over1$ $=a$

and similarly $MRS\_2=$ $MU\_{y\_1} \over{MU\_{y\_2}}$ $=$ $y\_2\over{y\_1}$

now plug in endowment values respectively which gives

$$a= {5\over{1}} \Longrightarrow a=5$$

$\therefore$ the above allocation is pareto optimal when $a=5$

> **Comments:**
> **username_3**: $$MRS_1=MRS_2$$ is only required in interior points. The allocation given in the question is not an interior point.  
> **username_5**: @denesp the question cited is talking about envy free allocation and I'm giving the answer for Pareto optimal  
> **username_3**: So am I. Consider the extreme example of $U_A(x_1,x_2) = 2x_1 + x_2$ and $U_B(x_1,x_2) = x_1 + 2x_2$. The allocation where $A$ gets (1,0) and $B$ get (0,1) is clearly PO but $MRS_A = 2 \neq 1/2 = MRS_B$. The same will be true in some cases in this question.  
> **username_2**: At the corner, condition for Pareto optimality is MRS $ = a\geq 5$. Refer to my answer for the picture proof: https://economics.stackexchange.com/a/16270/11824  

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