UA(XA. YA) = 4XA + 3YA UB (XB. Ya) 5(X)^ (Y₂)² Q1 a) Suppose that initially consumer A has 5 units of X and 15 units of Y, and that consumer B has 15 units of X and 5 units of Y. Is this allocation Pareto efficient? Let Px and Py be the prices of goods X and Y, respectively. Write down expressions for the two individuals' budget constraints.
UA(XA. YA) = 4XA + 3YA UB (XB. Ya) 5(X)^ (Y₂)² Q1 a) Suppose that initially consumer A has 5 units of X and 15 units of Y, and that consumer B has 15 units of X and 5 units of Y. Is this allocation Pareto efficient? Let Px and Py be the prices of goods X and Y, respectively. Write down expressions for the two individuals' budget constraints.
Chapter13: General Equilibrium And Welfare
Section: Chapter Questions
Problem 13.4P
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Question 1:
Consider a pure exchange economy with two consumption goods, X and Y, and two
consumers, A and B. There are 20 units of X and 20 units of Y in the economy. The
preferences of the consumers are represented by the following utility functions:
UA(XA, YA) = 4XA + 3YA
of 3
UB (XB, YB) = 5(XB)4 (YB)²
Q1 a) Suppose that initially consumer A has 5 units of X and 15 units of Y, and that consumer B
has 15 units of X and 5 units of Y. Is this allocation Pareto efficient? Let Px and Pybe the prices
of goods X and Y, respectively. Write down expressions for the two individuals' budget
constraints.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4d60af45-7273-40da-a0f9-7e8dfef3f538%2F68842b2f-1309-4ae9-85e1-4d5c507fc81c%2Fqbj9xhg_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Page < 2
Question 1:
Consider a pure exchange economy with two consumption goods, X and Y, and two
consumers, A and B. There are 20 units of X and 20 units of Y in the economy. The
preferences of the consumers are represented by the following utility functions:
UA(XA, YA) = 4XA + 3YA
of 3
UB (XB, YB) = 5(XB)4 (YB)²
Q1 a) Suppose that initially consumer A has 5 units of X and 15 units of Y, and that consumer B
has 15 units of X and 5 units of Y. Is this allocation Pareto efficient? Let Px and Pybe the prices
of goods X and Y, respectively. Write down expressions for the two individuals' budget
constraints.
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What are the values of PX and PY in the general competitive equilibrium of this
economy? Why?
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ketch the indifference
your diagram identify the area where there is scope for a Pareto improvement and explain why
this is the case.
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