3. First and Second Welfare TheoremsThere are two goods A and B and two inputs K and L. The production functions areAK L-aBK{L,Ya%3DY, =1-8The production functions display the standard properties, including constant returnsto scale.A representative household has utilityU(ca, Cb)where c; is the consumption of good i. The total supply of each factor is fixedK = Ka+K,L = La+Lo(a) A social planner allocates consumption of both goods and determines productionand the allocation of inputs. Derive the optimal allocation and demonstratethe marginal rate of substitution is equal to the marginal rate of transformationbetween the consumption goods. Draw a graph of the production possibilityfrontier.(b) Now assume a market system.i. Households own the labor and capital, which is rented to firms. The householdfaces a budget constraintwaLa + wyLb +raKa + rµK» 2 PaCa + PpCbwhere wi is the real wage paid in industry i and r is the rental rate inindustry i. The total supply of each factor is fixed, as described above. Solvethe household's maximization problem.ii. Firms maximize profits. A firm's profits in industry A areTha = PaFa(Ka, L.) – W.L – raKaand a firm's profits in industry B areTb = P,F(K, L1) – w,Ls – roK,Solve the maximization problem for each firm.iii. State the equilibrium conditions assuming households and firms are price-takers.(c) Demonstrate how the two allocations - the solution to the social planning problemand the competitive equilibrium - are equivalent. Provide a statement of the Firstand Second Welfare theorems using this example.

Hi , as you have posted multiple questions , as per our guidelines we can only solve 1 at a time .…

Answered: and Second Welfare Theorems There are…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Sketch the following budget constraints: PX PY Income A RO 50 100 RO 5000 B 100 150 5000 C 50 200 2000 D 20 8 800
Consider the market for new houses. If the price of lumber increases significantly, explain the effect of the change on the market equilibrium for new houses. Use the 4 step process in your answer. View keyboard shortcuts
If Porsha view 3 glasses of juice as a perfect substitute for one cup of soda and vice versa, what is her marginal rate of substitution between juice and soda?
A nomadic tribe in Lapland spends all its productive time hunting reindeer. Someof the reindeer meat is kept for consumption and the remainder is sold at a nearbytrading station in return for other goods. It is observed that when the price ofreindeer meat increases the amount the tribe is willing to supply decreases.(a) Sketch this situation in a diagram, with axes ‘reindeer meat’ and ‘all othergoods’. (Hint: locate the production position and sketch the consumptionopportunities line before and after the price change).(b) Determine if reindeer meat is an inferior good to the tribe?(Hint: consider what happens to the consumption position).(c) How does the analysis change if the tribe can hunt and trade fish as well as thereindeer? (Hint: now label the axes ‘reindeer meat’ and ‘fish’ and considerboth the production and consumption decisions
Consider the diagram, which depicts the market for Oranges. Suppose that consumer incomes decrease and that Oranges are a normal good. Which movement between labelled points best describes the impact on the market? a b с d Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer. A to B E to A C to D Price A to E E A D₂ Quantity Do AD₁
You have recently been hires by Delta Airlines to work in its strategy division. For each of the following, illustrate how Delta's supply curve for airline flights will be affected by shifting the accompanying graphs. a. The price of jet fuel falls. Decrease in price of jet fuelPriceQuantitySupply b. Innovation of new software allows Delta to more efficiently allocate its aircraft. New softwarePriceQuantitySupply c. Delta signs a new labor contract that increases the wages paid employees. Increase in labor costsPriceQuantitySupply
Suppose Albert's town raised the price of bus tickets to $1 per trip (while the price of burgers stayed at $2 and his budget remeained $10 per week.) Draw Albert's new budge constraint. What happend to the opportunity cost of bus tickets?
1. Say that there are two goods in the world, books and video games. Say that we observed two of Jim's choices: he chooses bundle A from the budget set bounded by budget line 1, and the bundle B from the budget set bounded by budget line 2. video games B A budget line 2 budget line 1 books a) For each of the two goods, based on the diagram: is the good normal, inferior, or we can't say for sure? Is the good ordinary, Giffen, or we can't say for sure? Explain. b) For which of the two budget lines is the opportunity cost of a book higher and why? What does that statement mean in the context of this model?
When a market produces more or less than the optimal amount of a particular good, economists say there is: O Market failure An in-kind transfer payment O A value marginal product O Cross-inefficiency
3. First and Second Welfare Theorems There are two goods A and B and two inputs K and L. The production functions are Ya AK,L 1-8 The production functions display the standard properties, including constant returns to scale. A representative household has utility U(Ca, Ch) where is the consumption of good i. The total supply of each factor is fixed Ci K Ka + K, La + L,
I. For the normal good, make a (Hypothetical) linear demand schedule with 7 different price points and corresponding quantity demanded for your own household. For the same normal good, make another (Hypothetical) linear demand schedule with 7 different price points and corresponding quantity demanded for your neighbor. Assuming that you and your neighbor are the only two households in the market, make a market demand schedule for the same normal good. Draw and interpret a graph to show the market demand and impact of changes in quantity demanded, if price of the same normal good decreases.
illustrates an upward-sloping relationship between price and quantity. O A demand curve O A supply curve A production possibility frontier O Equilibrium

SEE MORE QUESTIONS

Recommended textbooks for you

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

Principles of Economics (MindTap Course List)

Economics

ISBN:

9781305585126

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Managerial Economics: A Problem Solving Approach

Economics

ISBN:

9781337106665

Author:

Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:

Cengage Learning

Managerial Economics & Business Strategy (Mcgraw-…

Economics

ISBN:

9781259290619

Author:

Michael Baye, Jeff Prince

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS

and Second Welfare Theorems There are two goods A and B and two inputs K and L. The production functions are Y. AK L-a Y BK L, 1-3