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
Rahul Sunny answered 2 years agoRelated 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)
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