4) Consider a two agent and two good exchange economy where agent 1 has preferences represented by U, (x11, X21) = x11X21. Agent 2 has preferences represented by utility function U2(x12, X22) = x12X22. The initial endowments are w = (1,3) and w2 = (3,1). Show directly that every interior Pareto optimal allocation in this economy is a price equilibrium with transfers by finding the associated prices and transfers.

4) Consider a two agent and two good exchange economy where agent 1 has preferences represented by U, (x11, X21) = x11X21. Agent 2 has preferences represented by utility function U2(x12, X22) = x12X22. The initial endowments are w = (1,3) and w2 = (3,1). Show directly that every interior Pareto optimal allocation in this economy is a price equilibrium with transfers by finding the associated prices and transfers.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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