Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider a 2 person, 2 goods exchange economy. Suppose Ashley's utility function is given by uA(x1A, x2A) = (x1A)^(1/5)(x2A)^(4/5), where x1A is the amount Ashley

Consider a 2 person, 2 goods exchange economy. Suppose Ashley's utility function is given by uA(x1A, x2A) = (x1A)^(1/5)(x2A)^(4/5), where x1A is the amount Ashley consumes of good 1 and x2A is the amount Ashley consumes of good 2. Brady's utility function is given by uB (x1B , x2B ) = (x1B)(x2B)^4, where x1B is the amount Brady consumes of good 1 and x2B is the amount Brady consumes of good 2. Initially, Ashley has 10 units of good 1 and 30 units of good 2. Brady has 40 units of good 1 and 10 units of good 2.

Suppose Ashley consumes 16 units of good 1. How many units of good 2 would she need to consume in order for this allocation to be Pareto efficient assuming that Brady would consume the all of the remaining aggregate endowment? Calculate and round if necessary to one decimal.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To Business Statistics

Authors: Ronald M. Weiers

7th Edition

978-0538452175, 538452196, 053845217X, 2900538452198, 978-1111524081

Students also viewed these Economics questions

Question

How would you assess the quality of Internet research results?

Answered: 1 week ago