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Unformatted text preview: ECO 475 Homework 5 Jay H. Hong Due: Oct 13, 2010 WEDNESDAY Review Session 1 Computing the equilibrium Consider an island where two individuals ( i = 1 , 2) live forever who maximize their lifetime utility given by ∞ X t =0 β t ln( c i t ) . Let e i t denote the time t endowment of type i consumer, which is non-storable . (1) Define carefully a competitive equilibrium. (2) Solve the competitive equilibrium when the endowment process of each agent in the island is given by e 1 t = 12 if t = even 6 if t = odd e 2 t = 6 if t = even 3 if t = odd (3) Formulate the Social Planner’s problem where the planner’s weight on consumer 1 is α . Use μ t for the multiplier of time t constraint. (4) Formulate the transfer function for i = 1 , 2. (5) Using the Negishi’s method, compute the competitive equilibrium for this economy. Verify that your equilibrium you construct using the Negishi’s is identical to the equilibrium you derive from (2)....
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This note was uploaded on 09/06/2011 for the course ECO 475 taught by Professor Hong during the Fall '07 term at Rochester.
- Fall '07