Consider an economy with 2 goods and 2 agents. The first agent has the utility function, u (x₁, x₂) = ln x₁ + 2 ln x2, and the other one has u (y₁, Y2) = 2 ln y₁ + ln y2. The aggregate endowments of the 2 goods are given by (50, 100). Suppose there is a social planner who cares about agents equally.
Consider an economy with 2 goods and 2 agents. The first agent has the utility function, u (x₁, x₂) = ln x₁ + 2 ln x2, and the other one has u (y₁, Y2) = 2 ln y₁ + ln y2. The aggregate endowments of the 2 goods are given by (50, 100). Suppose there is a social planner who cares about agents equally.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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(a)Set up the plannerís problem.
(b)Calculate the first-best outcome (i.e., the social plannerís solution)
Transcribed Image Text:Consider an economy with 2 goods and 2 agents. The first agent has the utility
function, u (x1, x2) = ln x₁ + 2 ln x2, and the other one has u (y₁, y2) = 2 ln y₁ + ln y2.
The aggregate endowments of the 2 goods are given by (50, 100). Suppose there is a
social planner who cares about agents equally.
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