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 equilibrium allocation Pareto eﬃcient? Explain. (c) Consider the eﬃcient allocation x * = ((13 , 6) , (7 , 9)). Suppose that the government can impose a lumpsum tax T i to consumer i = 1 , 2. Furthermore, the government can subsidize consumer 2’s consumption of commodity 2 with a (Pigouvian) subsidy. Les s denote the perunit subsidy (i.e. consumer 2 receives s for each unit of commodity 2 that he buys). Find T * 1 ,T * 2 and s * such that the Walrasian equilibrium allocation is x * . Specify the Walrasian equilibrium prices. Is the government’s budget constraint satisﬁed with equality? Explain. 1...
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 Fall '09
 SHAPIRO
 Economics, Utility, Economic system, x1 x2, walrasian equilibrium prices, Dmitry Shapiro

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