Consider an exchange economy with two people (Ali, and Burcu) and two goods (apples, and bananas). Ali and Burcu have the following utility functions: UA = (XA) ¹/2+YA (XA is Ali's consumption of apples, and ya is his consumption of bananas) Ug = XB + 4y8 (xB is Burcu's consumption of apples, and ye is her consumption of bananas) Ali's initial endowment is 8 bananas and Burcu's initial endowment is also 32 apples. The price of banana is $2. Which of the following statement is true? a. Initial allocation is Pareto optimal b. Every Pareto optimal allocation is in the core OC. None of the above Od. Ali eats 6 bananas in the Walrasian equilibrium

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Consider an exchange economy with two people (Ali, and Burcu) and two goods (apples, and bananas). Ali and Burcu have the following utility functions:
UA = (XA) 1/2+YA (XA is Ali's consumption of apples, and ya is his consumption of bananas)
Ug = XB + 4yB
(XB is Burcu's consumption of apples, and ya is her consumption of bananas)
Ali's initial endowment is 8 bananas and Burcu's initial endowment is also 32 apples. The price of banana is $2. Which of the following statement is true?
a. Initial allocation is Pareto optimal
Ob.
Every Pareto optimal allocation is in the core
OC. None of the above
Od. Ali eats 6 bananas in the Walrasian equilibrium
e.
Price of apple is $0.50 in the Walrasian equilibrium
Transcribed Image Text:Consider an exchange economy with two people (Ali, and Burcu) and two goods (apples, and bananas). Ali and Burcu have the following utility functions: UA = (XA) 1/2+YA (XA is Ali's consumption of apples, and ya is his consumption of bananas) Ug = XB + 4yB (XB is Burcu's consumption of apples, and ya is her consumption of bananas) Ali's initial endowment is 8 bananas and Burcu's initial endowment is also 32 apples. The price of banana is $2. Which of the following statement is true? a. Initial allocation is Pareto optimal Ob. Every Pareto optimal allocation is in the core OC. None of the above Od. Ali eats 6 bananas in the Walrasian equilibrium e. Price of apple is $0.50 in the Walrasian equilibrium
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