Question

consider a pure exchange economy of two individual and two goods x and y individual A is endowed with 1 unit of good X and none of good Y,while individual B with 1 unit of good Y and none of good X.Assuming utility function of individual A and B to be Ua=XA​

Answer 1

.

Consider a pure exchange economy with two consumers (A and B), two goods (1 and

2), and endowment point E = (Ae,

Be) (so that Ae is the initial endowment of consumer A

and Be is the initial endowment of consumer B). Suppose the two consumers have identical

preferences represented by the utility function u. You may assume that u is smooth, strictly

increasing in each of its arguments, and strictly concave.

1. Show that X = ( Ae+ Be

2

,

Ae+ Be

2

) is a Pareto efficient allocation.

2. Can the allocation X be supported as a market equilibrium? If so, what prices would

support this allocation as a market equilibrium?

3. Are there other Pareto efficient allocations in this economy?

Answer 2

Answer:

helpful

Explanation:

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