Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
In an economy far, far away there are two consumers, Anakin Skywalker (consumer 1) and Obi Wan Kenobi (consumer 2). There are also two goods
In an economy far, far away there are two consumers, Anakin Skywalker (consumer 1) and Obi Wan Kenobi (consumer 2). There are also two goods they can consume, lightsabers (good 1) and speeder bikes (good 2). Anakin's preferences are given by the following utility function: 1.(21, 12) = $1,1 + 2 In(21,2), whereas Obi wan has preferences given by the = 212,1 + In(12,2). Endowments are as follows: Anakin owns 3 lightsabers and 2 speeder bike, whereas Obi wan own 1 lightsaber and 8 speeder bikes. . Calculate the general equilibrium of this economy. Hint: the marginal utilities are as follows. For Anakin, the marginal utility of lightsabers is 1 and the marginal utility of speeder bikes is 71,2 8 -2. For Obi Wan, the marginal utility of lightsabers is 2 and the marginal utility of speeder bikes is . Calculate the Pareto efficient allocations. . Anakin, who is very good friends with emperor Palpatine, wants the Galactic Senate to impose a tax on Obi Wan. The purpose of this tax is to make sure that in the equilibrium of the economy after taxation Anakin would get to consume 9 speeder bikes. Can such a tax be levied? Explain why yes or why not. Your credit will be based on your explanation, not your "yes" or "no" answer. (HINT: what do the welfare theorems tell us about the type of allocations that can be equilibria in an economy?)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started