In a two-good, two-consumer economy, utility functions are...

Question

In a two-good, two-consumer economy, utility functions are u1(x1,x2)=x1(x2)2,

u2(x1,x2)=(x1)2x2.

Total endowments are(10,20).

(a) A social planner wants to allocate goods to maximise consumer 1’s utility while holding con- sumer 2’s utility atu2=8000/27. Find the assignment of goods to consumers that solves the planner’s problem and show that the solution is Pareto efficient.
(b) Suppose, instead, that the planner just divides the endowments so thate1=(10,0)ande2= (0,20)and then lets the consumers transact through perfectly competitive markets. Find the Walrasian equilibrium and show that the WEAs are the same as the solution in part (a).

Robert · Accepted Answer

Convert JPG to PDF online - convert-jpg-to-pdf.net

In a two-good, two-consumer economy, utility functions are u1(x1,x2)=x1(x2)2, u2(x1,x2)=(x1)2x2. Total endowments are(10,20). (a) A social planner wants to allocate goods to maximise consumer 1’s...