QUESTION 1 Alice (A) and Bob (B) have an endowment of goods 1 and 2, with Alice's endowment being (w, w) = (1, 2) and Bob's endowment equals (w, w')= (1,3). Alice's utility is given by u(x₁, x) = 2 ln x₁ + ln x4, while Bob's utility is up (x,x) = ln x² + 2 ln . Find the competitive (Walrasian) equilibrium prices in this pure exchange economy. Assume the setting outlined in Question 1. Suppose that the social planner considers it to be imperative that agent B consumes exactly one unit of good 1 and four units of good 2. Although the social planner can not force the individuals to a particular consumption, they can enforce transfers of good 1 between the consumers (transfers of good 2 are not enforceable by the social planner). What transfer of good 1 would guarantee that in the resulting competitive Walrasian equilibrium consumer B consumes one unit of good 1 and four units of good 2? Select one: O a. O b. O C. O d. One half unit of good 1 has to be transferred from agent A to agent B. There is no endowment for which agent B would consume x = 1 and x = 4 in the corresponding competitive equilibrium. Therefore, no such transfers exist. One unit of good 1 has to be transferred from agent A to agent B. Transferring good 1 is not sufficient. It is necessary to transfer one unit of good 2 from agent A to agent B.
QUESTION 1 Alice (A) and Bob (B) have an endowment of goods 1 and 2, with Alice's endowment being (w, w) = (1, 2) and Bob's endowment equals (w, w')= (1,3). Alice's utility is given by u(x₁, x) = 2 ln x₁ + ln x4, while Bob's utility is up (x,x) = ln x² + 2 ln . Find the competitive (Walrasian) equilibrium prices in this pure exchange economy. Assume the setting outlined in Question 1. Suppose that the social planner considers it to be imperative that agent B consumes exactly one unit of good 1 and four units of good 2. Although the social planner can not force the individuals to a particular consumption, they can enforce transfers of good 1 between the consumers (transfers of good 2 are not enforceable by the social planner). What transfer of good 1 would guarantee that in the resulting competitive Walrasian equilibrium consumer B consumes one unit of good 1 and four units of good 2? Select one: O a. O b. O C. O d. One half unit of good 1 has to be transferred from agent A to agent B. There is no endowment for which agent B would consume x = 1 and x = 4 in the corresponding competitive equilibrium. Therefore, no such transfers exist. One unit of good 1 has to be transferred from agent A to agent B. Transferring good 1 is not sufficient. It is necessary to transfer one unit of good 2 from agent A to agent B.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:QUESTION 1
Alice (A) and Bob (B) have an endowment of goods 1 and 2, with Alice's endowment being (wi', w) = (1,2) and Bob's endowment equals
(wf, w}) = (1, 3). Alice's utility is given by u A(xf, x4) = 2 In zf + In zf, while Bob's utility is up(xf, zf) = In zf + 2 In zf. Find the
%3D
competitive (Walrasian) equilibrium prices in this pure exchange economy.
Assume the setting outlined in Question 1. Suppose that the social planner considers it to be imperative that agent B consumes exactly one unit
of good 1 and four units of good 2. Although the social planner can not force the individuals to a particular consumption, they can enforce
transfers of good 1 between the consumers (transfers of good 2 are not enforceable by the social planner). What transfer of good 1 would
guarantee that in the resulting competitive Walrasian equilibrium consumer B consumes one unit of good 1 and four units of good 2?
Select one:
O a. One half unit of good 1 has to be transferred from agent A to agent B.
O b.
There is no endowment for which agent B would consume æf = 1 and æ = 4 in the corresponding competitive equilibrium.
Therefore, no such transfers exist.
Oc.
One unit of good 1 has to be transferred from agent A to agent B.
Od.
Transferring good 1 is not sufficient. It is necessary to transfer one unit of good 2 from agent A to agent B.
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