a. Suppose a market is introduced for the externality Eveline causes on Victor. Let us denote by px the price of this externality. Suppose "property rights" are assigned such that Victor has the right not to experience the smell of cooked cabbage. The competitive equilibrium price ratios pm and Px are equal to?b. Derive the market allocation corresponding to the new competitive equilibrium of the economy formed by Eveline and Victor (ce, me) and (cv,mv).c. Is the new competitive equilibrium Pareto efficient? Eveline and Victor share a flat in Amsterdam. They both love eating healthy and cook at homemany times. The parents of both of them are farmers and always give them some food to take tothe city. Eveline's parents give her 10kg. cabbages and 8 kg. meat per month, while Victor'sparents give him 10kg. cabbages and12 kg. meat per monthEveline loves eating cooked cabbage while Victor rather eats it raw in salads, condimented witholive oil, garlic, lemon and salt. But the biggest difference is that Victor hates the smell producedduring the cooking of cabbage. As a matter of fact, Victor feels truly embarrassed when he bringsfriends and Eveline has cooked cabbage; every single time she does, he goes all over the placeopening windows, ventilating the house and spraying room freshener.Eveline's utility from meat (m) and cabbage (c) is given byuF (mE, CE) = CE mE.3/4 1/4while Victor's utility is u (my, cv; cE) = cmcA.1/2,-1/4As the utility function for Victor clearly shows, Eveline's consumption of cabbage clearlyrepresents a disutility for him. We then say that Eveline's consumption of cabbage causes anegative externality on Victor. Let us normalize the price of cabbage to pe = 1.

A Competitive market refers to a marketplace structure in which there are many buyers and dealers,…

Answered: competitive equilibrium

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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a. Suppose a market is introduced for the externality Eveline causes on Victor. Let us denote by p_x the price of this externality. Suppose "property rights" are assigned such that Victor has the right not to experience the smell of cooked cabbage. The competitive equilibrium price ratios p_m and P_x are equal to?

b. Derive the market allocation corresponding to the new competitive equilibrium of the economy formed by Eveline and Victor (c_e, m_e) and (c_v,m_v).

c. Is the new competitive equilibrium Pareto efficient?

Eveline and Victor share a flat in Amsterdam. They both love eating healthy and cook at home
many times. The parents of both of them are farmers and always give them some food to take to
the city. Eveline's parents give her 10kg. cabbages and 8 kg. meat per month, while Victor's
parents give him 10kg. cabbages and12 kg. meat per month
Eveline loves eating cooked cabbage while Victor rather eats it raw in salads, condimented with
olive oil, garlic, lemon and salt. But the biggest difference is that Victor hates the smell produced
during the cooking of cabbage. As a matter of fact, Victor feels truly embarrassed when he brings
friends and Eveline has cooked cabbage; every single time she does, he goes all over the place
opening windows, ventilating the house and spraying room freshener.
Eveline's utility from meat (m) and cabbage (c) is given by
uF (mE, CE) = CE mE.
3/4 1/4
while Victor's utility is u (my, cv; cE) = cmcA.
1/2,-1/4
As the utility function for Victor clearly shows, Eveline's consumption of cabbage clearly
represents a disutility for him. We then say that Eveline's consumption of cabbage causes a
negative externality on Victor. Let us normalize the price of cabbage to pe = 1.

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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