ECON201B 2006 PS3 - Economics 201B 2nd Half - Spring 2006...

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Problem Set 3 Economics 201B 2nd Half - Spring 2006 Due Thursday, 13 April in Lecture 1. Consider an Edgeworth Box economy in which the two agents, a and b , have utility given by U a = x 1 a + x 2 a and U b = 2 x 1 b + x 2 b . The endowments are w a = w b = (4 ; 4) . (a) Find the set of Pareto Optimal allocations in this economy. An answer supported by a well drawn picture and explanation are su¢ cient to answer this question; i.e., you are not required to formally solve for the corner solutions of a Lagrangian with non-negativity constraints (though you should verify for yourself that you know how to do this!) (b) Prove directly that every P.O. allocation in this economy can be supported as transfers (normalizing prices by p 1 = 1 ). If some P.O. allocations can be sup- ported by multiple prices and transfers, indicate the full set of prices and transfers for these allocations. Again, an answer supported by several well drawn pictures
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This note was uploaded on 08/01/2008 for the course ECON 201B taught by Professor Anderson during the Spring '06 term at University of California, Berkeley.

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ECON201B 2006 PS3 - Economics 201B 2nd Half - Spring 2006...

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