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Consider a pure exchange economy with two goods & = 1,2 and two households i = A, B. The total available amount of good 1
Consider a pure exchange economy with two goods & = 1,2 and two households i = A, B. The total available amount of good 1 and 2 is 9 and 12 units, respectively. Utility functions for households A and B are UA(TAI, CA2) = TAITA2 and us(281, 282) = CBITB2. .2 (a) Find an expression for the Pareto optimal set. (b) Assume eA = (4, 4) and ep = (5, 8) are A and B endowments, respectively. Find the competitive equilibrium. (c) Is the competitive equilibrium allocation in the Pareto Optimal set? Why this result should not surprise us
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