QUESTION 1

(a)Prove that when all markets in simple economy are perfectly competitive, the following hold:

(i)(MRTS_LK)_x = (MRTS_LK)_y

(ii) (( MRS_xy)_A = (( MRS_xy)_B

(iii) (( MRS_xy)_A = (( MRS_xy)_B = MRT_xy

(b) Explain the distinction between public goods and good supplied by the government, and give some example.

(c) What type of public goods can be provided only by government?

(d) Explain why public goods give rise to a free - rider problem.