Consider a 2 x 2 pure exchange economy with two consumers, Andy and Beth, or {A,...

 

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Consider a 2 x 2 pure exchange economy with two consumers, Andy and Beth, or {A, B}, and two goods {1,2}. Andy has endowment e = (4,2) and Bob has endowment e³ = (2,2). Andy's preferences can be represented by the utility function UA = A1(he only values good 1) and Beth's preferences can be represented by the utility function up = XB1XB2. Find the set of Pareto optimal allocations, justifying your answer. You can either write this set mathematically or draw it on your Edgeworth box clearly. The Second Welfare Theorem says that, under certain assumptions, any Pareto efficient allocation can be supported as a Walrasian Equilibrium for some choice of initial endowment. Show that this statement in italics holds true in this example. You can either show directly that every Pareto efficient allocation can be supported as a Walrasian Equilibrium, or state the assumptions of the Second Welfare Theorem and give some reasoning as to why they hold. Consider a 2 x 2 pure exchange economy with two consumers, Andy and Beth, or {A, B}, and two goods {1,2}. Andy has endowment e = (4,2) and Bob has endowment e³ = (2,2). Andy's preferences can be represented by the utility function UA = A1(he only values good 1) and Beth's preferences can be represented by the utility function up = XB1XB2. Find the set of Pareto optimal allocations, justifying your answer. You can either write this set mathematically or draw it on your Edgeworth box clearly. The Second Welfare Theorem says that, under certain assumptions, any Pareto efficient allocation can be supported as a Walrasian Equilibrium for some choice of initial endowment. Show that this statement in italics holds true in this example. You can either show directly that every Pareto efficient allocation can be supported as a Walrasian Equilibrium, or state the assumptions of the Second Welfare Theorem and give some reasoning as to why they hold.

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The set of P are to optimal allocations is given by 4 2 2 2 This can be seen by noting that ... View the full answer