Question: The Second Welfare Theorem states: every Pareto Efficient Allocation can be supported by a competitive, market equilibrium. Consider a two-person (A and B), two-good (1

The Second Welfare Theorem states: every Pareto Efficient Allocation can be supported by a competitive, market equilibrium. Consider a two-person (A and B), two-good (1 and 2) exchange economy. The total endowment of goods 1 and 2 is (10, 10). The initial endowment of person A is (9, 3).

Suppose the government wants to achieve a final allocation of (5, 5) for both A and B. At this allocation: MRSA 1 for 2 = MRSB 1 for 2 = 1. Suppose further that the government can enforce transfers of only good 1 between A and B. Is the final allocation a Pareto efficient allocation? What is the equilibrium relative price (P1/P2) that will achieve this final allocation? What is the transfer of good 1 between A and B that will ensure the final allocation as a result of a competitive, market equilibrium

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