QUESTION 1Alice (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 uniof good 1 and four units of good 2. Although the social planner can not force the individuals to a particular consumption, they can enforcetransfers of good 1 between the consumers (transfers of good 2 are not enforceable by the social planner). What transfer of good 1 wouldguarantee that in the resulting competitive Walrasian equilibrium consumer B consumes one unit of good 1 and four units of good 2?Answer this pleaseSelect 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.

Walrasian equilibrium: It is theory that explains the macroeconomy functions as a whole. It do not…

Answered: Alice (A) and Bob (B) have an endowment…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider the following pure exchange, Edgeworth box economy. There are two consumers, Adam and Mark, and two goods. Adam has an endowment of 7 units of good 1 and 3 units of good 2 (i.e. wadam = (7, 3)), while Mark has an endowment of 3 units of good 1 and 7 units of good2 (wmark$ = (3,7)). The consumers' utility functions are given by: Uadam = Xa1 + Xa2 and Umark = min{xm1, Xm2) where x¡1 is the consumption of good 1 by consumer (i = adam, mark) (a) Find the set of Pareto optimal allocations of this economy (b) Find the Walrasian equilibrium.
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1
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