| "To achieve an efficient allocation, lump-sum taxes on consumers' endowments and per-unit taxes on the prices of goods are equivalent." Do you agree with this assertion? Explain using the welfare theorems in your argu- ments.
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- 1. Suppose in an economy there are only two individuals; Shakib and Tamim. They only have two products; Biriyani and Tehari. Shakib and Tamim’s endowment allocations are the following: wS = (10, 2) and wT = (4, 5).The first number represents the quantity of Biriyani and the second number represents the quantity of Tehari. Using a diagram, explain the following concepts:a) Endowment allocationsb) Pareto improving allocationsc) The core1. Consider allocations b-f (meaning points a, b, and f). Which allocations(s) A. are better for Ross than “a” (ignoring Rosa)? B. are better for Rosa than “a” (ignoring Ross)? C. are worse for both Ross and Rosa than “a”? D. are better for both Ross and Rosa than “a”? E. are Pareto superior to “a”?2: Assuming all necessary assumptions hold, discuss why every competitive equilibrium allocation is Pareto efficient but not every Pareto efficient allocation is a competitive equilibrium alloca- tion.
- Consider a economy with three goods, a, b and c. The total supply consists 150a, 180b and 120c. There are three consumers 1,2,3 They have the followiing preferences: u1(a,b,c)=a u2(a,b,c)=a+b u3(a,b,c)=1+c a) Identify a competitive equilibrium from euqal incomes in which the price of a and c are equal. b) Find the egalitarian equivalent allocation(EEA is one that gives each agent the same utility as giving the one a fraction x of total supply, for x as large as possible)Explain the statement true or false. Give an example of a person's economic situation to explain the solution. "It is possible to have a Pareto efficient allocation where someone is worse off than she is at an allocation that is not Pareto efficient"3.a. State and explain the First Theorem of Welfare Economics and discuss its economicimplications and significance.b. State and explain the Second Theorem of Welfare Economics and discuss its economicimplications and significance.c. Explain the concept of production possibility frontier and interpret the slope of theproduction possibility frontier in economic terms.
- True or False. State with reasoning: The theory of second best says that if there is a distortion that cannot be removed from the market, then it is never best to get all other variables to the Pareto efficient allocation.Consider a two-agent two-good barter economy. Agent 1 only cares about good 1, and agent 2only cares about good 2. There is only 1 unit of good 1, and 2 units of good 2 in the economy,which is distributed equally between the agents while agent 1 owns the only unit of good 1 inthe economy.a. Compute and explain the Pareto optimal allocations.b. Compute and explain the equilibrium prices and allocations.c. How would your answers to parts a and b change if agent 1 shared half of his good 1 withagent 2? Discuss.Explain why an economy in which airlines charge different passengers different prices for the same flight will not have exchange efficiency. b. Going back to our two good (Apples, Oranges), two person (Ed, Mary) economy, suppose that at a given allocation, Ed’s MRSAO is 3 and Mary’s MRSAO is 1. Use proof by contradiction to show that this allocation is not exchange efficient. Identify a trade that will increase the utility of Ed and Mary. Explain. Show this graphically (with indifference curves). Going back to our two good (Apples, Oranges), two person (Ed, Mary) economy, suppose that at a given allocation, Ed’s MRSAO is 3 and Mary’s MRSAO is 1. Use proof by contradiction to show that this allocation is not exchange efficient. Identify a trade that will increase the utility of Ed and Mary. Explain. Show this graphically (with indifference curves).
- A. State the first theorem of welfare economics of a production and exchange economy. B. Which conditions must be satisfied for the Pareto efficiency of an allocation of a production and exchange economy (assuming that all goods are used, produced and consumed in strictly positive quantities)? Discuss and explain.Question 2: Suppose NAWEC charges D5 for every kilowatt hour of electricity for the first 1000 used in a month and D7.5 for each extra. Kilowatt hour after that. Draw the budget constraint for George who face this price schedule. Discuss why many Gambian may choose to consume exactly 1,000 kilowatt hour. Question 3 Suppose an individual consumes three items: steak, lettuce, and tomatoes. If we were interested only in examining this person’s steak purchases, we might group lettuce and tomatoes into a single composite good called ‘‘salad.’’ Suppose also that this person always makes salad by combining two units of lettuce with one unit of tomato. How would you define a unit of ‘‘salad’’ to show (along with steak) on a two-good graph? How does the price of salad (PS) relate to the price of lettuce (PL) and the price of tomatoes (PT)? What is this person’s budget constraint for steak and salad? Would a doubling of the price of steak, the price of lettuce, the price of tomatoes, and this…a) Suppose demand for good X is given by QD = 900- p/2 where p is the price and QD the quantity demanded. Supply is given by QS = p/4. Suppose 60 TL tax is imposed on each unit of X that is purchased. What is the burden of the tax? Explain the key factors that determine the incidence of the tax. b) Describe the main differences between partial and general equilibrium analysis in the context of examining tax incidence.