Consider a two-person exchange economy in which person 1 owns 200 units of x and 100 units of y while person 2 owns 100 units of x and 200 units y. Suppose their preferences over the two goods can be represented as: U1 (x, y) = y + 50Inx U2 (x, y) = y + 150lnx 1. How much of x do they trade among each other? 2. Does the First Welfare Theorem (FWT) hold in this economy? 3. Can some individuals be made better off if we are at the Pareto efficient allocation?
Consider a two-person exchange economy in which person 1 owns 200 units of x and 100 units of y while person 2 owns 100 units of x and 200 units y. Suppose their preferences over the two goods can be represented as: U1 (x, y) = y + 50Inx U2 (x, y) = y + 150lnx 1. How much of x do they trade among each other? 2. Does the First Welfare Theorem (FWT) hold in this economy? 3. Can some individuals be made better off if we are at the Pareto efficient allocation?
Chapter1: What Economics Is About
Section: Chapter Questions
Problem 19QP
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Consider a two-person exchange economy in which person 1 owns 200 units of x and 100 units of y while person 2 owns 100 units of x and 200 units y. Suppose their preferences over the two goods can be represented as:
U1 (x, y) = y + 50Inx
U2 (x, y) = y + 150lnx
1. How much of x do they trade among each other?
2. Does the First Welfare Theorem (FWT) hold in this economy?
3. Can some individuals be made better off if we are at the Pareto efficient allocation?
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