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Unformatted text preview: Therefore, the change in rule does not affect the length of music for Ada The above results are true only because music/quietness is independent of any income effect, given the utility functions (the contract cure is horizontal). This is not a general result. If we do not have this very special kind of utility function, there is no guarantee that the competitive equilibrium noise level remains at 6 hours. So with different utility functions, once the dorm rule changes, the noise level also changes. (the competitive equilibrium will move along contract curve that is not horizontal) 0A Y A * = Y A ’ = 6 Y B = 12 X B = 10 X A = 10 U A1 U B1 Contract Curve Slope = -6 0B M E F N X A ’ = 11 X A * = 9...
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This note was uploaded on 08/26/2010 for the course ECON ECON191 taught by Professor Chan during the Spring '09 term at HKUST.
- Spring '09