Suppose the economy has 100 units each of goods X and Y and the utility functions of the (only) 2 individuals are: UA (XA,YA) = X0.25Y0.75, UB (XB,YB) = X0.75Y 0.25show the MRS equation and find the required efficiency equation in XA 4. Suppose the economy has 100 units each of goods X and Y and the utility functions of the (only) 2individuals are: UA (XA,YA) = X0.25y0.75, UB (XB,YB) = X0.75Y 0.25Show that pareto-improvement is possible if, initially, goods are divided equally between the two individuals.

The initial endowments are not effcient and improvement is possible as explained below.

Answered: Suppose the economy has 100 units each…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose the economy has 100 units each of goods X and Y and the utility functions of the (only) 2 individuals are: U_A (X_A,Y_A) = X^0.25Y^0.75, U_B (X_B,Y_B) = X0.75Y 0.25
show the MRS equation and find the required efficiency equation in X_A

4. Suppose the economy has 100 units each of goods X and Y and the utility functions of the (only) 2
individuals are: UA (XA,YA) = X0.25y0.75, UB (XB,YB) = X0.75Y 0.25
Show that pareto-improvement is possible if, initially, goods are divided equally between the two individuals.

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