Homework 1

# Homework 1 - x 1 x 2 =1 z 1 z 2 =1 a Find the condition for...

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Economics 1480 Homework #1 1) Rosen Chapter 3: problem 4 2) Rosen Chapter 3: problem 6 3) Consider the pure exchange economy discussed in class. There are two goods (x,z) and two individuals (1,2). Individuals have Cobb-Douglass preferences as follows: U 1 =U(z 1, x 1 ) = (z 1 ) α (x 1 ) 1 −α U 2 =U(z 2, x 2 ) = (z 2 ) 0.5 (x 2 ) 0.5 Endowments of the two goods are normalized to one:
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Unformatted text preview: x 1 +x 2 =1 z 1 +z 2 =1 a) Find the condition for Pareto optimality. b) In an Edgeworth box, plot the contract curve for the following cases: α =1/4, α =1/2, α =3/4. Interpret any differences between these three contract curves. c) Plot the utilities possibilities frontier for the case of α =1/2....
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