Let: U1 = x1 + z^.5, Y1 = x1 + pz1 U2 = x2 - .5z^.5, Y2 = x2 + pz2 z = z1 + z2, Y is the income of the agent, and p is the price of z1 and z2. What is the social-optimal amount of z1 and z2? What is the optimal amount of z1 agent 1 would choose given z2, and vice versa? What can the social planner do so that the agents choose the socially optimal level of z1 and z2? How much is needed to achieve the social-optimal amount?

Let: U1 = x1 + z^.5, Y1 = x1 + pz1 U2 = x2 - .5z^.5, Y2 = x2 + pz2 z = z1 + z2, Y is the income of the agent, and p is the price of z1 and z2. What is the social-optimal amount of z1 and z2? What is the optimal amount of z1 agent 1 would choose given z2, and vice versa? What can the social planner do so that the agents choose the socially optimal level of z1 and z2? How much is needed to achieve the social-optimal amount?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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