a) Consider an economy with 3 agents, Mohammed (M), David (D) and Susan (S). There are two goods available, good x, and good y. The marginal rates of substitution (where good x is on the horizontal axis and good y is on the vertical axis) are given by for Mohammed, for David and for Susan. Mohammed and David are both 2y/xD for David and MRS=a) Consider an economy with 3 agents, Mohammed (M), David (D) and Susan (S). There aretwo goods available, good x, and good y. The marginal rates of substitution (where good x ison the horizontal axis and good y is on the vertical axis) are given by MRSM = 2yM/xM forMohammed, MRSxyys/xs for Susan. Mohammed andDavid are both consuming twice as much of the good x than good y, while Susan is consumingequal amounts of x and y. What are the conditions for Pareto efficiency in an exchangeeconomy? Are these consumption levels economically efficient? Can these consumptionallocations be observed in a perfectly competitive equilibrium in an exchange economy withoutproduction? Explain.=

The marginal rate of substitution is the quantity of one thing that a person is willing to give up…

Answered: = a) Consider an economy with 3 agents,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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a) Consider an economy with 3 agents, Mohammed (M), David (D) and Susan (S). There are two goods available, good x, and good y. The marginal rates of substitution (where good x is on the horizontal axis and good y is on the vertical axis) are given by for Mohammed, for David and for Susan. Mohammed and David are both

2y/xD for David and MRS
=
a) Consider an economy with 3 agents, Mohammed (M), David (D) and Susan (S). There are
two goods available, good x, and good y. The marginal rates of substitution (where good x is
on the horizontal axis and good y is on the vertical axis) are given by MRSM = 2yM/xM for
Mohammed, MRSxy
ys/xs for Susan. Mohammed and
David are both consuming twice as much of the good x than good y, while Susan is consuming
equal amounts of x and y. What are the conditions for Pareto efficiency in an exchange
economy? Are these consumption levels economically efficient? Can these consumption
allocations be observed in a perfectly competitive equilibrium in an exchange economy without
production? Explain.
=

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