2. There are two consumers A and B and two commodities x and y. UA = x%yA-a: Utility function of consumer A. w: consumer A's endowment of good x w: consumer A's endowment of good y „a„1-a. UB = 2xB + YB: Utility function of consumer B. w: consumer B’s endowment of good x w: consumer B's endowment of good y Px: price of good x Py: price of good y ‚y. p = Px /p,: relative price of good x a. Find the equation of the contract curve. b. Find the competitive equilibrium (p*, xả, yÃ, xâ, yB). Your answers should be in terms of Py the parameters.

2. There are two consumers A and B and two commodities x and y. UA = x%yA-a: Utility function of consumer A. w: consumer A's endowment of good x w: consumer A's endowment of good y „a„1-a. UB = 2xB + YB: Utility function of consumer B. w: consumer B’s endowment of good x w: consumer B's endowment of good y Px: price of good x Py: price of good y ‚y. p = Px /p,: relative price of good x a. Find the equation of the contract curve. b. Find the competitive equilibrium (p*, xả, yÃ, xâ, yB). Your answers should be in terms of Py the parameters.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Solve and Explain Q#40 and 41
2. Let the smoke emitted by a widget manufacturing plant is so bad that the welfare if people residing in the vicinity are being severely affected. The cost imposed on the people residing in the vicinity is estimated to be $ 100,000 while the value of production (smoke comes as a byproduct) for the plant is $ 120,000. a) Are too much, too little or the right number of widgets being produced? b) If the plant makes an offer of S 110,000 to the residents to compensate for the harmful smoke, can we conclude that the externality (if any) is internalized? c) If the plant makes an offer of S 110,000 to the residents to compensate for the harmful smoke, can we conclude that all the costs (or benefits) of the action are being considered? d) If the plant makes an offer of $ 110,000 to the residents to compensate for the harmful smoke, can we conclude that the efficient (surplus maximizing) quantity of widgets would be produced?
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ANS: T DIF: 2 15. Jack Spratt's utility function is U(F, L) I L. His wife's utility function is U(F, L) I F. If Jack's initial endowment is 10 units of F and 5 units of L and if Jack's wife's initial endowment is 6 units of F and 10 units of L, then in an Edgeworth box for Jack and his wife, an allocation of F and L will be Pareto optimal only if it is at a corner of the box. ANS: F DIF: 2 16. Jack Spratt's utility function is U(F, L) I L. His wife's utility function is U(F, L) F. If Jack's initial endowment is 40 units of F and 20 units of L and if Jack's wife's initial endowment is 24 units of F and 40 units of L, then in an Edgeworth box for Jack and his wife, an allocation of F and L will be Pareto optimal only if it is at a corner of the box. ANS: F DIF: 2 17. Jack Spratt's utility function is U(F, L) I L. His wife's utility function is U(F, L) I F. If Jack's initial endowment is 100 units of F and 50 units of L and if Jack's wife's initial endowment is 60 units of F and 100 units…
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2. Residents in a town are voting to decide where a new library will be built. The residents" homes are on the same street and the "map" of the town is represented below. The letters represent the location of each house. The numbers represent distance in 100 meters (in other words, house 'a' is 100 meters from house 'b' and 1200 meters from house i). Each house- hold would receive a utility of 12 if the library was built in front of that house; utility decreases by I unit as the distance to the library increases by 100 meters. Use the distance markers (the numbers) to indicate where the library should go according to the following aggregation methods:
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7. In an Edgeworth box for two consumers, A and B, with endowments of commodities Xa and Ya are A's endowments, Xb and Yb are B's, and Xo = Xa + Xb, Yo = Ya + Yb), the competitive equilibrium allocation of the two commodities represents a mutual tangency of both consumers' indifference curves with each other and with a common budget line. (a) The conditions require that A and B consume at a point on their budget lines where their indifference curves have the same marginal rate of substitution, and equilibrium for the market as a whole requires that the sum of the individuals' demands for each commodity must equal the totals (Xo and Yo) available. Mathematically express the point of equilibrium, that is, express the above statement with equations in relating each endowments, equilibrium points (Xa, Xb, Ya, Yb), and totals ((Xo, Yo). (b) Suppose MRSa = Ya/Xa, MRSB = Yb/Xb, Xa = 10, Ya, = 100, Xb = 50, Yb = 20, and let good Y be the numeraire (Py =1). Verify that the competitive…
Which concept refers to the tendency of individuals to overvalue the utility of an item they already possess compared to an identical item they do not possess? A. Diminishing marginal utility B. Marginal cost C. Sunk cost fallacy D. Endowment effect
741 Ny 7:0 Mond Content X + ultra/courses/_99030_1/cl/outline manipic cempo me manipic accompis. INIU Force Completion. This test can be saved and resumed later. BILLETTE Your answers are saved automatically. * Question Completion Status: QUESTION 1 The goal of the consumer is to maximize the total utility or satisfaction derived from their purchase choices, given the unique budget constraint. To calculate total utility of a given combination of T-shirts and movies, one would use the following approach: O a. For a given combination of T-shirts and movies, survey a group of individuals to determine an average for utils to be assigned to the number of T-shirts and movies. O b. For a given combination of T-shirts and movies, use Google to identify the number of utils associated with the number of T-shirts and movies and thenlum them. O c. For a given combination of T-shirts and movies, assign a number of utils to that combination. O d. Use utils as a measure of utility, assigning a…
2. General Equilibrium Consider a market with two goods, x and z, and two consumers, A and B. The utility functions for consumers A and B are as follows UA ÜB 2 1 == XBZB and the initial endowments for each consumer are @ eA = (4,2) еB = (2,6) where consumer B is endowed with 2 unit of good x and 6 units of good z, respectively. a) Draw the Edgeworth Box (Don't worry about the shape of the utility curves. Just pick a general shape that we have used before). b) Derive the contract curve.
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