Consider an economy which is in general equilibrium. Ann and Bob are (the only) two consumers in an economy. They both consume both good and good y. This implies that mu mu (i) The equality is important with regards to efficiency because it implies that there are no Pareto Improving trades of x and y between Ann and Bob. (ii) The equality is important with regards to efficiency because it implies that (for x and y) the prices that producers see reflect the (relative) values that consumers place on the goods. O a. Only statement (ii) is true. Ⓒb. Only statement (1) is true. O c. Both statements are true. O d. Both statements are false. mu mu . Consider the truth of the following two statements:

Consider an economy which is in general equilibrium. Ann and Bob are (the only) two consumers in an economy. They both consume both good and good y. This implies that mu mu (i) The equality is important with regards to efficiency because it implies that there are no Pareto Improving trades of x and y between Ann and Bob. (ii) The equality is important with regards to efficiency because it implies that (for x and y) the prices that producers see reflect the (relative) values that consumers place on the goods. O a. Only statement (ii) is true. Ⓒb. Only statement (1) is true. O c. Both statements are true. O d. Both statements are false. mu mu . Consider the truth of the following two statements:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. a) Consider an economy with 3 agents, Mohammed (M), David (D) and Susan (S). There are two goods available, good x, and good y. The marginal rates of substitution (where good x is on the horizontal axis and good y is on the vertical axis) are given by for Mohammed, for David and for Mohammed and David are both consuming twice as much of the good x than good y, while Susan is consuming equal amounts of x and y. What are the conditions for Pareto efficiency in an exchange economy? Are these consumption levels economically efficient? Can these consumption allocations be observed in a perfectly competitive equilibrium in an exchange economy without production? Explain. b. There are two firms in the economy. Each firm employs positive amounts of capital and labour. The technology satisfies diminishing marginal rate of technical substitution of labour for capital. Currently, A’s marginal rate of technical substitution of labour for capital is 4 while B’s marginal rate of technical…
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9. Consider an exchange economy with two individuals, a and b, and two goods, x and y. Individual a has utility function U"(x, y) = x?y, and individual 6 has utility function U(x, y) = 3x+4y. What condition will hold at all Pareto efficient allocations in the interior of the Edgeworth box? A. ***8yª = 3r" B. yº = { C. 8y = 3.xb D. y" = 2x"
5. Consider a two-consumer one-firm economy with a single input good and a single output good. Consumers' utility functions are u4(x4) Suppose that the input good is divisible and that wA = wB = 1/2. Suppose that the output good is indivisible (i.e., that xg, q = 0, 1, 2, ...), and that the firm's production technology is such that it requires 1 unit of input to produce one unit of output. rA + 3r and uB(xB) 4x? + x. (a) Derive the Pareto set of this economy. (b) For all Pareto-efficient allocations from (a), derive a competitive equilibrium for this economy that generates these allocations.
9. Consider an Edgeworth box economy with two consumers, whose utility func- tions and endowments are u'(x},x}) = (x}Xx})} (5,5) In the following, use the normalization p2 = 1. (a) Find the competitive equilibrium price. (b) State the first fundamental theorem of welfare and verify that it holds in this economy. (e) Consider the allocation ĩ = (x',) = (2,3), (8, 7). Show whether this allo- cation can supported as an equilibrium with transfers. (d) State the second fundamental theorem of welfare, and briefly discuss whether the result in part (c) conform with or violate this theorem. 3.