h1w08 - Department of Economics The Ohio State University...

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Department of Economics The Ohio State University Econ 805—Homework #1 due Thursday, January 24 Prof James Peck Winter 2008 1. A consumer’s o f er curve is the locus of tangencies between the budget lines and indi f erence curves as relative prices change. (i) For a two-person, Edgeworth Box economy, explain why any intersection of the two o f er curves is a competitive equilibrium. (ii) What is the equation for the following consumer’s o f er curve? u ( x 1 ,x 2 )= log ( x 1 )+ log ( x 2 ) , ( ω 1 2 )=(1 , 1) . 2. Provide a counterexample to the f rst welfare theorem (you can use a carefully labeled and explained Edgeworth box) when some consumer has a “bliss point” giving the highest possible utility. That is, f nd an example of a competitive equilibrium allocation that is not strongly Pareto optimal. 3. Consider a pure exchange economy with two consumers, i =1 , 2 ,andtwo goods. The consumers’ utility functions are given by u i ( x 1 i ,x 2 i )=( x 1 i )( x
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This note was uploaded on 07/17/2008 for the course ECON 805 taught by Professor Peck during the Spring '08 term at Ohio State.

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h1w08 - Department of Economics The Ohio State University...

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