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Unformatted text preview: Econ 440 March 1 Peter Norman Midterm 1 1. Consider an economy with two goods, x and y and two agents, A and B: Suppose that the agents are endowed with e A = & e A x ; e A y ¡ and e B = & e B x ; e B y ¡ units of the two goods. Also suppose that preferences over di/erent consumption bundles are represented by utility functions u A ( x; y ) and u B ( x; y ) respectively. (a) De&ne a competitive equilibrium. (b) De&ne a Pareto optimal allocation. (c) True¡False: All competitive equilibria are Pareto Optimal. Explain using a wisely chosen graph. No credit unless explanation satisfactory. (d) True¡False: All Pareto optimal allocations are competitive equilibria. Explain using a wisely chosen graph. No credit unless explanation satisfactory. (e) Suppose instead that preferences are given by u A & x A ; x B ; y ¡ and u B & x A ; b B ; y ¡ : Would this a/ect the answers above? Why? Why not? No credit unless answer contains a reasonable explanation....
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This note was uploaded on 11/02/2008 for the course ECON 440 taught by Professor Peternorman during the Spring '08 term at UNC.
- Spring '08