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 î§ and rice îÃ. Their preferences are represented by the following utility functions: wv = √√x²x² U S uc = √√x€r€ - 2xU Assume that smartphones are produced using only labour according to the production function ys √L. China is endowed with LC 10 units of labour and ec 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. = = =

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 î§ and rice îÃ. Their preferences are represented by the following utility functions: wv = √√x²x² U S uc = √√x€r€ - 2xU Assume that smartphones are produced using only labour according to the production function ys √L. China is endowed with LC 10 units of labour and ec 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. = = =

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.1P

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