Answers_to_HW_2_155a

Answers_to_HW_2_155a - Fall 2008 Truman Bewley Economics...

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Unformatted text preview: Fall 2008 Truman Bewley Economics 155a Answers to Homework #2 (Due Thursday, September 25) Probtem: 4) For the Edgewcrth box economies listed below: i) find the set of feasible allocations and the set offiaretogptiflal allocations and show them on a box diagram, ii) find a Pareto optimal allocation x = ( x A, xB) that gives the consumers equal utltity, that is, is such that uA( YA) = ua( :5), iii) indicate the endowment allocation e and the allocation 7 on the box diagram, iv) find and draw the utility possibility set and indicate the utility vectors corresponding to the endowment allocation and to the allocation x , and v) find all vectors of the form a = (aA, as), such that a > O and aAuA( xA) + aBuB( x B) zaAuA(xA) + aBuB(xB), for all feasible allocations x = (xA, x3). I a) eA=(1,O),eB=(0, 1), uA(x1, x2) = ’x1x2 =uB(x1, x2). b) eA=(O,1),eB=(1,O),u(x x2) =2x1+x2,u3(x1, x2) = x1+2x2. c) eA= (2,0),ea=(0, 1), uA(x1, x2) =x1 + x2=uB(x1, x2). d) e =(1,0),e =(0,1),u(x,x) =min(2x,x),u(x,x) = min(x,2x). A B A 1 2 1 2 B 1 2 1 2 e) eA= (1, 0),e8= (0, 2), uA(x1, x2) = mln(x1, x2) = uB(x1,x2). Answer:a) 1 0B 9 0 1 .s-gJMaLaW-M. a.» Noam“;- i) The set of feasible allocations is the box above. The set of Pareto optimal allocations is the diagonal, becatfie both consumers have the same homothetic utilit_y function. ii) The Pareto optimal allocation x that gives both consumers the same utility is ( x A, x8) = ((1/2, 1/2), (1/2, 1/2)). iii) The allocation I is at the center of the box, and the endowment allocation, e, is at the lower right-hand corner of the box. iv) The utility possibility set “it is all the points on the line segment going from (1, 0) to (0, 1) in the diagram below together with all the points southwest of that line segment. The utility vector of the endowment allocationis at the origin and that of the allocation x is at the midpoint of the line segment. mm lav/mt my».:twmwwqg.awwwmtwwwmmwmmwmm‘ «sis-,memww “’mmsmww-rma 'r W)». massew." We em a“ w,_\,_\;$.M;ms._a,_;éwewxa;~“we. .. M, _ .,._ ”HM H q» a. w...a.vs-.:..,...s_v::,uMyaag_.,./,,,,_wwwfl. aamwom...“ , mm- N- Answer: b) o T: A i) The set of feasible allocations is the box shown above. The Pareto optimal allocations are the thick lines at the bottom and right-hand edges of the box. indifference curves of person A and B are indicated as IA and IB, respectively. ii) The altocation x is at the lower right-hand corner of the box. iii) The endowment allocation is at the upper left-hand corner of the box. iv) The utility possibility frontier is the tine going from the point (0, 3) to (2, 2) to (3, 0) in the diagram below. The utliity possibility set elf, is everything on this frontier and southwest of it. The utility vector of x is at (2, 2), and the utility vector of the endowment, e, is at (1, 1). a v) {(a,a)|(a,a) >>Oahd s A B A B .532}. a B j. 2 c) i) The set of feasible allocations is the whole box in the diagram below, as is the set of Pareto optimal allocations. (Because the consumers have the same iinear utility functions, their indifference curves are tangent at every point in the box.) Indifference curves are s_traight lines of slope minusgne. ii) An allocation gying the same utility to each consumer is x, where xA = (1, 1/2) = x . iii) The allocation x is at the center of the box in the diagram. B The endowment allocation e is at the lower right-hand corner of the box. 1/2 § F E mmwfimwwzewmmmrm»«Wm mmuwztmww mmmmtnwm; WWm,=—.umy.mw,m® aw»;"gzmnm‘mwmnwwirwN» iv) The utility possibility frontier is fine going from (0,, 3) to (3, 0) in the diagram below. The utility possibility set GUI is everything on this frontier and southwest of it. The utility vectors corresponding to eand to x are as indicated; u(e) = (2, 1); and u( x ) = (3/2, 3/2). é 'é Answer: d) i) The set of feasible allocations is the box in the above diagram. The set of Pareto optimal allocations is shaded with dots. Sampte indifference curves for persons A and B are labeted as IA and IB, respectively. The Pareto optimal allocation giving each consumer the same utility is x = (:A, x3) = ((1/3, 2/3), (2/3, 1/3)). it is shown in the box, as is the endowment allocation e. iv) The utility possibility set 5% is as shown in the diagram below. Answer: e) i) The set of teasibie allocations is the box in the above diagram. The set of Pareto optimal allocations is the region in the box shaded with dots. Sample indifference_curves for person A and B and labeled as IA and IB, respectively. ii) The allocation x is the allocation xA= :B=(1/2,1). iii) 3: and e are as indicated in the box diagram. iv) The utility possibility set all: is as shown in the diagram below. E E § § 3‘, i E é .y 93.95%.»a.5£2:,_,“5.255ufiafifiigfigwtit?i; i515. 10 ...
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