Question

In: Economics

Consider an economy with two goods, x and y, and two agents, Anna and Bert. Anna...

Consider an economy with two goods, x and y, and two agents, Anna and Bert. Anna and Bert wish to trade with one another in order to maximize their individual utilities. We will consider how their trading decisions depend on the initial endowments of X and Y and on their utility functions. Suppose Anna is endowed with one unit of X and half a unit of Y and Bert is endowed with one unit of X and one and a half units of Y. Their utility functions are given by: ?A=?? ?B=?+2?

(a)Draw an Edgeworth box indicating the endowment and preferences of this problem.

(b)Find the det of Pareto Optimal Allocations in this economy and draw this in the Edgeworth box. What is this set of points called?

(c)Find the equilibrium and consumption of x and y by Anna and Bert in this economy and determine the price ratio that supports this equilibrium.

(d)Will this equilibrium allocation be Pareto Efficient?

Solutions

Expert Solution


Related Solutions

Consider an exchange economy with two agents, A, B, and two goods,  x, y. A's endowment is...
Consider an exchange economy with two agents, A, B, and two goods,  x, y. A's endowment is x = 6, y = 4, and B's endowment is x = 4, y = 6. (a) Suppose that A has utility function  u(x, y) = x + y  and B has utility function u(x, y) = xy. Find a competitive equilibrium allocation (CEA) and associated equilibrium prices. What difference would it make if A's endowment is x = 3, y = 1, and B's endowment...
4: There is an exchange economy with two agents, A, B, and two goods, x, y....
4: There is an exchange economy with two agents, A, B, and two goods, x, y. A's endowment is x = 6, y = 4, and B's endowment is x = 4, y = 6. (a) A has the utility function u(x, y) = x + y and B u(x, y) = xy. Find a competitive equilibrium allocation (CEA) and associated equilibrium prices. What difference would it make if A's endowment is x = 3, y = 1, and B's...
Consider an exchange economy with two individuals, A and B, and two goods, x and y....
Consider an exchange economy with two individuals, A and B, and two goods, x and y. Individual A has utility function UA(xA; yA) = xAyA, and individual B has utility function UB(xB; yB) = xByB. If there are 10 units of x and 10 units of y in the market, what is the equation of the contract curve? Group of answer choices yA = 0.5xA yA = 2xA yA = 5xA yA = xA
Consider an economy in which an individual (A) is consuming two goods (X and Y). The...
Consider an economy in which an individual (A) is consuming two goods (X and Y). The government is considering two alternative taxation policies: (a) taxing good X; (b) putting a lump- sum tax on A. By using a graphical analysis, compare these two taxation policies in terms of “excess burden”.
Consider an economy in which an individual (A) is consuming two goods (X and Y). The...
Consider an economy in which an individual (A) is consuming two goods (X and Y). The government is considering two alternative taxation policies: (a) taxing good X; (b) putting a lumpsum tax on A. By using a graphical analysis, compare these two taxation policies in terms of “excess burden”.
Consider an economy in which an individual (A) is consuming two goods (X and Y). The...
Consider an economy in which an individual (A) is consuming two goods (X and Y). The government is considering two alternative taxation policies: (a) taxing good X; (b) putting a lumpsum tax on A. By using a graphical analysis, compare these two taxation policies in terms of “excess burden”
Suppose there are two goods in an economy, X and Y. Prices of these goods are...
Suppose there are two goods in an economy, X and Y. Prices of these goods are Px and Py, respectively. The income of the only agent (consumer) in the economy is I. Using this information, answer the following questions: a. Write down the budget constraint of the consumer. Draw it on a graph and label the critical points accordingly. Provide a verbal explanation of why all income is spent, mentioning the underlying assumption for this outcome. b. Define substitution and...
Consider a pure exchange economy with 2 goods and 3 agents. Good y is the numeraire,...
Consider a pure exchange economy with 2 goods and 3 agents. Good y is the numeraire, so we set py = 1. • Mr. 1 is Cobb-Douglas of type λ = 0.25 and is endowed with (10, 4). • Mr. 2 is Cobb-Douglas of type λ = 0.5 and is endowed with (5, 9). • Mr. 3 is Cobb-Douglas of type λ = 0.75 and is endowed with (20, 20). In the following steps, you will find the equilibrium of...
3. Consider a pure exchange economy with two goods, wine (x) and cheese (y) and two...
3. Consider a pure exchange economy with two goods, wine (x) and cheese (y) and two con- sumers, A and B. Let cheese be the numeraire good with price of $1. Consumer A’s utility function is UA(x,y) = xy and B’s utility function is UB(x,y) = min[x,y]. A has an initial allocation of 10 x and no y, and B has an initial allocation of 10 units of y and no x. (a) Put wine x on the horizontal axis...
Consider an economy with two goods, x and y. Explain why if a consumer has well-behaved...
Consider an economy with two goods, x and y. Explain why if a consumer has well-behaved preferences over bundles of x and y then the two goods cannot both be inferior goods. (Please answer that easy to understand)
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT