Question
Consider an economy with two consumers whose preferences are represented by utility functions U = min{21, 31} and U = 2x2 + y2 and
Consider an economy with two consumers whose preferences are represented by utility functions U = min{21, 31} and U = 2x2 + y2 and the aggregate endowment of 4 units of r and 3 units of y. (a) (3) Find a Pareto efficient allocation, state what each consumer consumes in that allocation, and depict the outcome in an Edgeworth box. Label the allocation as a point and draw both consumer's indifference curves at that point. Hint: You can't find MRS for perfect complements, solve the problem by finding an optimality condition for consumer 1 and carefully drawing both consumers' indifference curves in an Edgeworth box. (b) (2) Is there a Pareto efficient allocation in which one consumer has all of the goods? Prove your assertion.
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Public Finance
Authors: Harvey Rosen, Ted Gayer
10th edition
9781259716874, 78021685, 1259716872, 978-0078021688
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