In an economy, there is a consumer who consumes a consumer good. Its utility is given by U(C)=C, where C is its consumption. The production of this consumer good is given by: Y_C= (l_y)^0.3 .E^0.7 where "l_y" is the amount of labor used directly in the production of the consumer good and "E" the total amount of energy expended in the production of this good. The total energy production is given by: Y_E = l_E,

where "l_E" is the total amount of work spent on energy production. The total work allocation is 20.

(a) Suppose now that the government subsidizes energy production, paying 10% more for the amount of energy produced (thus, the energy producing firm's revenue is 1.1.P_E y_E, with P_E being the energy price ). This subsidy is financed by a lump-sum consumer tax. Get the new competitive balance. (b) Is the competitive equilibrium obtained in (a) efficient? What theoretical result is behind your answer?