Question 1 Consider two consumers, Alex ( A) and Nicola ( N), who both like good x. Alex also likes good y but Nicola dislikes it when Alex consumes good y. Alex's preferences are ? (log (x A) + log (yA) ) and Nicola's preferences are ? (log (N) + log (yN) ) - log (1 + yA) Suppose that both have incomes of 10 and that the price of both goods is equal to 1. (a) Show that the individually optimal choices of Alex and Nicola are CA = ON = yA = yN = 5. [5 marks] (b) Is this outcome Pareto efficient? Explain. [5 marks] (c) What would be the choice of yA if Nicola could choose Alex's consumption of y? [5 marks] (d) How does this compare to the outcome at the Utilitarian social optimum? [5 marks] (e) Can you think of reasonable and practical way of resolving the conflict of interest over Alex's y consumption? [5 marks]