Consider an Edgeworth box economy, where preferences and endowments are given by. ( attached below ) In the following, use the normalization p2 = 1. (a) Find all the Pareto optimal allocations (use x1 to parameterize the PO allocations). (b) Suppose the government wants individual 1 to have the bundle x1 = (5, 9). Show whether the government can induce this outcome an equilib- rium with transfers. Find the supporting prices and transfers if possible. (c) State the Second Fundamental Theorem of Welfare and explain how the result in part (b) relates to that theorem. (d) Suppose the government does not care what bundle individual 1 gets and only wants to ensure that the individual 1 receives utility level equal to 45. Show whether this can be achieved as an equilibrium with transfers. Find the supporting prices and transfers if possible.
Consider an Edgeworth box economy, where preferences and endowments are given by. ( attached below )
In the following, use the normalization p2 = 1.
(a) Find all the Pareto optimal allocations (use x1 to parameterize the
PO allocations).
(b) Suppose the government wants individual 1 to have the bundle x1 = (5, 9). Show whether the government can induce this outcome an equilib- rium with transfers. Find the supporting prices and transfers if possible.
(c) State the Second Fundamental Theorem of Welfare and explain how the result in part (b) relates to that theorem.
(d) Suppose the government does not care what bundle individual 1 gets and only wants to ensure that the individual 1 receives utility level equal to 45. Show whether this can be achieved as an equilibrium with transfers. Find the supporting prices and transfers if possible.
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