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Unformatted text preview: 1 > 0 then x 1 2 = 6 and x 2 2 = 9. (b) Find the Walrasian equilibrium prices and allocation. Is the equilib-rium allocation Pareto eﬃcient? Explain. (c) Consider the eﬃcient allocation x * = ((13 , 6) , (7 , 9)). Suppose that the government can impose a lump-sum tax T i to consumer i = 1 , 2. Furthermore, the government can subsidize consumer 2’s consump-tion of commodity 2 with a (Pigouvian) subsidy. Les s denote the per-unit subsidy (i.e. consumer 2 receives s for each unit of commod-ity 2 that he buys). Find T * 1 ,T * 2 and s * such that the Walrasian equi-librium allocation is x * . Specify the Walrasian equilibrium prices. Is the government’s budget constraint satisﬁed with equality? Explain. 1...
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This note was uploaded on 10/20/2010 for the course ECON 6202 taught by Professor Shapiro during the Fall '09 term at UNC Charlotte.
- Fall '09