Consider a Robinson Crusoe economy where Crusoe has an endowment of 12 units of time and...
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Consider a Robinson Crusoe economy where Crusoe has an endowment of 12 units of time and no food. He can spend time gathering food: if he spends k ≥ 0 units of time gathering food, he manages to find 2k units of food. He has preferences over leisure time (good 1) and food (good 2) given by u (x1, x2) = min {x1, x2}. Find the Walrasian Equilibrium. (5 marks) 10 Now suppose that when Crusoe collects food, he damages the environment. For every k units of food he gathers, he creates units of environmental damage. Let his new utility function be u(x₁, x2) = min {x₁, x2} - d, where d is the damage caused. Find the allocation that maximises Crusoe's utility and the Walrasian Equilibrium. Compare your answers to what you found in (a) and (c) and give some intuition for any differences. (5 marks) Consider a Robinson Crusoe economy where Crusoe has an endowment of 12 units of time and no food. He can spend time gathering food: if he spends k ≥ 0 units of time gathering food, he manages to find 2k units of food. He has preferences over leisure time (good 1) and food (good 2) given by u (x1, x2) = min {x1, x2}. Find the Walrasian Equilibrium. (5 marks) 10 Now suppose that when Crusoe collects food, he damages the environment. For every k units of food he gathers, he creates units of environmental damage. Let his new utility function be u(x₁, x2) = min {x₁, x2} - d, where d is the damage caused. Find the allocation that maximises Crusoe's utility and the Walrasian Equilibrium. Compare your answers to what you found in (a) and (c) and give some intuition for any differences. (5 marks)
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Find the Walrasian Equilibrium 5 marks ANSWER In the Walrasian Equilibrium Crusoe will choose to spend k6 units of time gathering food which will give ... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Posted Date:
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