Persons A and B are roommates. Person A smokes and Person B does not. The index s measures how smoky the room is. It varies from s=0, where there is no smoke in the room, to s=1, when the room is filled with smoke. Thus, 1-s measures how "clean" the air in the room is. Person A's utility function is uA(XA,S)=XA+10s, where XẠ is the amount of money Person A owns. Person B's utility function is ug(Xg,1s)=Xg+5(1-s), where xg is the amount of money Person B owns. Each person starts with an endowment of 5 units of money. Person B has the legal right to a smoke- free room and there exists a market for "emission" rights. At the Walrasian equilibrium, what will be the value of the smoke index s? a. None of the other answers. b. s=0 C. S=1 d. s=0.5 e. s=0.1

Persons A and B are roommates. Person A smokes and Person B does not. The index s measures how smoky the room is. It varies from s=0, where there is no smoke in the room, to s=1, when the room is filled with smoke. Thus, 1-s measures how "clean" the air in the room is. Person A's utility function is uA(XA,S)=XA+10s, where XẠ is the amount of money Person A owns. Person B's utility function is ug(Xg,1s)=Xg+5(1-s), where xg is the amount of money Person B owns. Each person starts with an endowment of 5 units of money. Person B has the legal right to a smoke- free room and there exists a market for "emission" rights. At the Walrasian equilibrium, what will be the value of the smoke index s? a. None of the other answers. b. s=0 C. S=1 d. s=0.5 e. s=0.1

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.12P

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