What is China's budget constraint?Describe the maximisation problem of China, set up the Lagrangian, andderive China's optimal consumption of smartphones and rice as a function ofthe price of smartphones ps, the price of rice på and the wage w. We first want to understand why the issue of climate change requires government inter-vention and cannot be addressed by market mechanisms.Consider two countries, the US (U) and China (C) who enjoy two goods, smartphonesî, and rice îr. Their preferences are represented by the following utility functions:UU =uc=V S r√xcx² – 2x4Assume that smartphones are produced using only labour according to the productionfunction ys=√Ls. China is endowed with LC 10 units of labour and ef = 10 unitsof rice (which doesn't need to be manufactured). The US is endowed with no units oflabour or rice but owns the smartphone producer and is entitled to 100% of its profits.=

In this case, we have to discuss the budget constraint. A budget constraint is a financial concept…

What is China's budget constraint? Describe the maximisation problem of China, set up the Lagrangian, and derive China's optimal consumption of smartphones and rice as a function of the price of smartphones ps, the price of rice p, and the wage w.

What is China's budget constraint? Describe the maximisation problem of China, set up the Lagrangian, and derive China's optimal consumption of smartphones and rice as a function of the price of smartphones ps, the price of rice p, and the wage w.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.2P

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