Question
Consider a two-person, two-good economy (say, apples and bananas) without production. Both consumers have identical preferences, given by u(a,b)= a 0.2 b 1-0.2 , where
Consider a two-person, two-good economy (say, apples and bananas) without production. Both consumers have identical preferences, given by u(a,b)= a0.2b1-0.2, where a denotesthe consumption of apples, and b the consumption of bananas. Person1 owns 40 bananas and 20 apples, whereas person 2 owns 20 bananas and 40 apples.
and
For this question,refer back to the data from question 3.
Suppose the government of this economyadoptsaRawlsianapproach to welfare economics. That is, the socialwelfarefunction they adopt is as follows:
in file below...
Calculate the Socially Optimal allocation for this economy. Can such an allocation be achieved via re-distribution of the endowments?
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