Consider a pure exchange economy with two goods k = 1,2 and two householdsi = A, B. The total available amount of good 1 and 2 is 9 and 12 units, respectively.Utility functions for households A and B areUA (TA1, A2) = TA1TA2 and UB(B1, B2) = XB1T32.(a) Find an expression for the Pareto optimal set.(b) Assume e A = (4,4) and eg (5,8) are A and B endowments, respectively. Findthe competitive equilibrium.(c) Is the competitive equilibrium allocation in the Pareto Optimal set? Why thisresult should not surprise us?

The two goods in the economy is given as The total amount of good 1 available is 9 units.The total…

Consider a pure exchange economy with two goods k = 1,2 and two households i A, B. The total available amount of good 1 and 2 is 9 and 12 units, respectively. Utility functions for households A and B are UA (TA1, A2) = TAITA2 and UB(B1, B2) = XB1³2. (a) Find an expression for the Pareto optimal set. (b) Assume e A = (4, 4) and eg = (5,8) are A and B endowments, respectively. Find the competitive equilibrium. (c) Is the competitive equilibrium allocation in the Pareto Optimal set? Why this result should not surprise us?

Consider a pure exchange economy with two goods k = 1,2 and two households i A, B. The total available amount of good 1 and 2 is 9 and 12 units, respectively. Utility functions for households A and B are UA (TA1, A2) = TAITA2 and UB(B1, B2) = XB1³2. (a) Find an expression for the Pareto optimal set. (b) Assume e A = (4, 4) and eg = (5,8) are A and B endowments, respectively. Find the competitive equilibrium. (c) Is the competitive equilibrium allocation in the Pareto Optimal set? Why this result should not surprise us?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

Question

Consider a pure exchange economy with two goods k = 1,2 and two households
i = A, B. The total available amount of good 1 and 2 is 9 and 12 units, respectively.
Utility functions for households A and B are
UA (TA1, A2) = TA1TA2 and UB(B1, B2) = XB1T32.
(a) Find an expression for the Pareto optimal set.
(b) Assume e A = (4,4) and eg (5,8) are A and B endowments, respectively. Find
the competitive equilibrium.
(c) Is the competitive equilibrium allocation in the Pareto Optimal set? Why this
result should not surprise us?

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