Assume that there is two-person two-commodity pure exchange economy. A's utility function is u¹(x,x) = x + ln x2 and his endowment is w4 = (1,4). B's utility function is u²(x,x) = x + 2 In x2 and his endowment is w³ = (3,2). (a) Determine and draw the set of Pareto efficient allocations in an Edgeworth box for this economy (b) The price p₂ is normalized to 1; for simplicity we write p₁ as just p. Calculate the Walras equilibrium price p and Walras allocation [(₁,2), (,)]. Check that the Walras allocation is Pareto efficient graphically and algebraically.

Assume that there is two-person two-commodity pure exchange economy. A's utility function is u¹(x,x) = x + ln x2 and his endowment is w4 = (1,4). B's utility function is u²(x,x) = x + 2 In x2 and his endowment is w³ = (3,2). (a) Determine and draw the set of Pareto efficient allocations in an Edgeworth box for this economy (b) The price p₂ is normalized to 1; for simplicity we write p₁ as just p. Calculate the Walras equilibrium price p and Walras allocation [(₁,2), (,)]. Check that the Walras allocation is Pareto efficient graphically and algebraically.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.5P

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