Question: Use the garbage disposal services and wine example from class and draw Anna's indifference curves (assume they are the usual convex ones). Put garbage disposal

Use the garbage disposal services and wine example from class and draw Anna's indifference curves (assume they are the usual convex ones). Put garbage disposal services on the vertical axis and wine on the horizontal axis. Then, add to your diagram the production possibilities frontier between garbage disposal and wine. Your diagram should illustrate the following situation: a starting point in which Anna's MRS of wine for garbage disposal is 3:1 (she is indifferent between being able to dispose of 3 bags of garbage or taking one more bottle of wine) and the MRT of wine for garbage is 2:1 (to obtain more bags of garbage disposal services requires a reduction in the production of one bottle of wine (holding inputs constant).

a) Draw the diagram illustrating the starting situation and label it completely.

b) State the (mathematical) condition necessary for efficiency in production and exchange.

c) Explain whether the starting point situation in your diagram is efficient.

d) For this society would you recommend that it undertake greater expenditures on garbage control, less expenditure on garbage control, or do nothing (status quo)? Explain your answer.

e) How would your answers to c) and d) change if Anna's MRS of wine for garbage disposal is 1:3?

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