We begin by solving the consumer’s problems:(a) What is the US’s budget constraint?(b) Describe the maximisation problem of the US, set up the Lagrangian, andderive the US’s optimal consumption of smartphones and rice as a functionof the price of smartphones ps, the price of rice pr and the profits of thesmartphone producer πs (you do not need to solve for these profits yet). We first want to understand why the issue of climate change requires government inter-vention and cannot be addressed by market mechanisms.Consider two countries, the US (U) and China (C) who enjoy two goods, smartphonesIs and rice x,. Their preferences are represented by the following utility functions:ay axx-2xuu =uc =Assume that smartphones are produced using only labour according to the productionfunction ys = √Ls. China is endowed with LC = 10 units of labour and e = 10 unitsof rice (which doesn't need to be manufactured). The US is endowed with no units oflabour or rice but owns the smartphone producer and is entitled to 100% of its profits.

In this case, we have to discuss the budget constraint. Budget constraint is total available money…

Answered: We begin by solving the consumer’s…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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We begin by solving the consumer’s problems:

(a) What is the US’s budget constraint?

(b) Describe the maximisation problem of the US, set up the Lagrangian, and
derive the US’s optimal consumption of smartphones and rice as a function
of the price of smartphones ps, the price of rice pr and the profits of the
smartphone producer πs (you do not need to solve for these profits yet).

We first want to understand why the issue of climate change requires government inter-
vention and cannot be addressed by market mechanisms.
Consider two countries, the US (U) and China (C) who enjoy two goods, smartphones
Is and rice x,. Their preferences are represented by the following utility functions:
ay a
xx-2x
uu =
uc =
Assume that smartphones are produced using only labour according to the production
function ys = √Ls. China is endowed with LC = 10 units of labour and e = 10 units
of rice (which doesn't need to be manufactured). The US is endowed with no units of
labour or rice but owns the smartphone producer and is entitled to 100% of its profits.

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