a- Start from the initial endowment point Ex A and Ey A for individual A(the commodities in the economy are x and y) and initial endowment point Ex B and Ey B for individual B. Write down the no excess demand condition for both individuals, and write down the collective no excess demand condition for the entire society, if the demands of individual A is XA and YA and the demands of individual B is XB and YB. b-If UA=XA 2/3×YA 1/3 and UB=min(2YB, XB) establish the main equation for the contract curve for the society. Assume that the starting endowment level is Ex A=2 Ex B=4 and Ey A=2 Ey B=1. c-In terms of the MRS`s for the two individuals why is it very hard to guarantee equalization? Graphically represent the situation.
a- Start from the initial endowment point Ex A and Ey A for individual A(the commodities in the economy are x and y) and initial endowment point Ex B and Ey B for individual B. Write down the no excess
b-If UA=XA 2/3×YA 1/3 and UB=min(2YB, XB) establish the main equation for the contract curve for the society. Assume that the starting endowment level is Ex A=2 Ex B=4 and Ey A=2 Ey B=1.
c-In terms of the MRS`s for the two individuals why is it very hard to guarantee equalization? Graphically represent the situation.
d- Compute the competitive
f- Write down what the second fundamental theorem says about the trade-off between equity and efficiency? What kind of policy to create equity would create a positive trade-off between efficiency and equity? Why?
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