Question

Consider a pure exchange economy with two consumers and two commodities. Each consumer has consumption set $X_i=\mathbf{R}_{+}^2$, and endowments are given by $$ w_i= \begin{cases}(1,3) & \text { for } i=1 \\ ,(3,1) & \text { for } i=2 .\end{cases} $$ Utility functions are of "Leontief type" (i.e., indifference sets are L-shaped), described by utility functions of the form: $$ u_i\left(x_i\right)=\min \left\{x_{i 1} / \alpha_i, x_{i 2} / \beta_i\right\} $$ where $\alpha_i$ and $\beta_i$ are positive constants. For each of the following two cases, determine the set of Pareto optima, Walrasian, and core allocations for the economy. Illustrate each of the sets in an Edgeworth box and in a net trade diagram. $$ \left(\alpha_i, \beta_i\right)= \begin{cases}(2,1) & \text { if } i=1 \\ (1,2) & \text { if } i=2 .\end{cases} $$ $$ \left(\alpha_i, \beta_i\right)=(2,1) \text { for } i=1,2 . $$ 1.15 Repeat the preceding exercise for a two-person exchange economy in which endowments are given by $$ w_i= \begin{cases}(0,4) & \text { if } i=1, \\ (4,0) & \text { if } i=2\end{cases} $$ and preferences are represented by the utility function $$ u_i\left(x_i\right)=x_{i 1}+2 x_{i 2} \text { for } i=1,2 . $$

   Consider a pure exchange economy with two consumers and two commodities. Each consumer has consumption set $X_i=\mathbf{R}_{+}^2$, and endowments are given by
$$
w_i= \begin{cases}(1,3) & \text { for } i=1 \\ ,(3,1) & \text { for } i=2 .\end{cases}
$$
Utility functions are of "Leontief type" (i.e., indifference sets are L-shaped), described by utility functions of the form:
$$
u_i\left(x_i\right)=\min \left\{x_{i 1} / \alpha_i, x_{i 2} / \beta_i\right\}
$$
where $\alpha_i$ and $\beta_i$ are positive constants. For each of the following two cases, determine the set of Pareto optima, Walrasian, and core allocations for the economy. Illustrate each of the sets in an Edgeworth box and in a net trade diagram.
$$
\left(\alpha_i, \beta_i\right)= \begin{cases}(2,1) & \text { if } i=1 \\ (1,2) & \text { if } i=2 .\end{cases}
$$
$$
\left(\alpha_i, \beta_i\right)=(2,1) \text { for } i=1,2 .
$$
1.15 Repeat the preceding exercise for a two-person exchange economy in which endowments are given by
$$
w_i= \begin{cases}(0,4) & \text { if } i=1, \\ (4,0) & \text { if } i=2\end{cases}
$$
and preferences are represented by the utility function
$$
u_i\left(x_i\right)=x_{i 1}+2 x_{i 2} \text { for } i=1,2 .
$$
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Competitive Equilibrium: Theory and Applications
Competitive Equilibrium: Theory and Applications
Bryan Ellickson 1st Edition
Chapter 1, Problem 15 ↓

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To find the Pareto optima, we need to find allocations where no individual can be made better off without making someone else worse off. In other words, we need to find allocations where no Pareto improvement is possible. For the first case, where  Show more…

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Consider a pure exchange economy with two consumers and two commodities. Each consumer has consumption set $X_i=\mathbf{R}_{+}^2$, and endowments are given by $$ w_i= \begin{cases}(1,3) & \text { for } i=1 \\ ,(3,1) & \text { for } i=2 .\end{cases} $$ Utility functions are of "Leontief type" (i.e., indifference sets are L-shaped), described by utility functions of the form: $$ u_i\left(x_i\right)=\min \left\{x_{i 1} / \alpha_i, x_{i 2} / \beta_i\right\} $$ where $\alpha_i$ and $\beta_i$ are positive constants. For each of the following two cases, determine the set of Pareto optima, Walrasian, and core allocations for the economy. Illustrate each of the sets in an Edgeworth box and in a net trade diagram. $$ \left(\alpha_i, \beta_i\right)= \begin{cases}(2,1) & \text { if } i=1 \\ (1,2) & \text { if } i=2 .\end{cases} $$ $$ \left(\alpha_i, \beta_i\right)=(2,1) \text { for } i=1,2 . $$ 1.15 Repeat the preceding exercise for a two-person exchange economy in which endowments are given by $$ w_i= \begin{cases}(0,4) & \text { if } i=1, \\ (4,0) & \text { if } i=2\end{cases} $$ and preferences are represented by the utility function $$ u_i\left(x_i\right)=x_{i 1}+2 x_{i 2} \text { for } i=1,2 . $$
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