Alice (A) and Bob (B) have an endowment of goods 1 and 2, with Alice's endowment being (w, wª) = (1, 2) and Bob's endowment equals %3D (wł , w) = (1,3). Alice's utility is given by u4(xf', x£') = 2 In æf + In æf', while Bob's utility is u g(xf , æž ) = In ¤f + 2 ln æf. %3D Suppose that the social planner considers it to be imperative that agent B consumes exactly one i of good 1 and four units of good 2. Although the social planner can not force the individuals to a particular consumption, they can enforce transfers of good 1 between the consumers (transfers of good 2 are not enforceable by the social planner). What transfer of good 1 would guarantee that in the resulting competitive Walrasian equilibrium consumer B consumes one unit of good 1 and four units of good 2? Answer this please Select one: O a. One half unit of good 1 has to be transferred from agent A to agent B. O . There is no endowment for which agent B would consume xf = 1 and x = 4 in the corresponding competitive equilibrium. %3D Therefore, no such transfers exist. O c. One unit of good 1 has to be transferred from agent A to agent B.
Alice (A) and Bob (B) have an endowment of goods 1 and 2, with Alice's endowment being (w, wª) = (1, 2) and Bob's endowment equals %3D (wł , w) = (1,3). Alice's utility is given by u4(xf', x£') = 2 In æf + In æf', while Bob's utility is u g(xf , æž ) = In ¤f + 2 ln æf. %3D Suppose that the social planner considers it to be imperative that agent B consumes exactly one i of good 1 and four units of good 2. Although the social planner can not force the individuals to a particular consumption, they can enforce transfers of good 1 between the consumers (transfers of good 2 are not enforceable by the social planner). What transfer of good 1 would guarantee that in the resulting competitive Walrasian equilibrium consumer B consumes one unit of good 1 and four units of good 2? Answer this please Select one: O a. One half unit of good 1 has to be transferred from agent A to agent B. O . There is no endowment for which agent B would consume xf = 1 and x = 4 in the corresponding competitive equilibrium. %3D Therefore, no such transfers exist. O c. One unit of good 1 has to be transferred from agent A to agent B.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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
Transcribed Image Text:QUESTION 1
Alice (A) and Bob (B) have an endowment of goods 1 and 2, with Alice's endowment being (wt, w) = (1,2) and Bob's endowment equals
(wf , w) = (1,3). Alice's utility is given by u4 (xf, xf) = 2 ln xf + In æ£ , while Bob's utility is uB(xf, x}) = ln xf + 2 ln x? .
Suppose that the social planner considers it to be imperative that agent B consumes exactly one uni
of good 1 and four units of good 2. Although the social planner can not force the individuals to a particular consumption, they can enforce
transfers of good 1 between the consumers (transfers of good 2 are not enforceable by the social planner). What transfer of good 1 would
guarantee that in the resulting competitive Walrasian equilibrium consumer B consumes one unit of good 1 and four units of good 2?
Answer this please
Select one:
O a.
One half unit of good 1 has to be transferred from agent A to agent B.
O b.
There is no endowment for which agent B would consume x
= 1 and x = 4 in the corresponding competitive equilibrium.
Therefore, no such transfers exist.
О с.
One unit of good 1 has to be transferred from agent A to agent B.
O d.
Transferring good 1 is not sufficient. It is necessary to transfer one unit of good 2 from agent A to agent B.
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