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 yı + 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. (a) (b) Set up the planner's problem. Calculate the first-best outcome (i.e., the social planner's solution).
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 yı + 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. (a) (b) Set up the planner's problem. Calculate the first-best outcome (i.e., the social planner's solution).
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter1: What Economics Is About
Section: Chapter Questions
Problem 19QP
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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 yı + 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.
(a)
(b)
Set up the planner's problem.
Calculate the first-best outcome (i.e., the social planner's solution).
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