Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider an exchange economy consisting of two people, A and B, endowed with two goods, 1 and 2. Person A is initially endowed with A

Consider an exchange economy consisting of two people, A and B, endowed with two goods, 1 and 2. Person A is initially endowed with A = (3,7) and person B is initially endowed with B = (9,5). Person A's preferences are given by UA (xA1, xA2) = 0.4 ln xA1 + 0.6 ln xA2 and Person B's preferences are given by UB(xB1, xB2) = (xB1)0.4(xB2)0.6. Which one of the following represents the set of Pareto optimal allocations?

a. xA1 = xA2

b. xA1 = (1/2)xA2

c. xA1 = (2/3)xA2

d. xA1 = (3/2)xA2

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored 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

The Routledge To Global Political Economy Conversations And Inquiries

Authors: Ernesto Vivares

1st Edition

1351064525, 9781351064521

More Books

Students also viewed these Economics questions

Question

The personal characteristics of the sender

Answered: 1 week ago

Question

The quality of the argumentation

Answered: 1 week ago