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    Exchange Economies Ps

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    bobbyy222
    This document contains two homework problems related to intermediate microeconomics concepts. The first problem modifies an exchange economy model from class and asks how changes to endowments or preferences impact equilibrium prices. The second problem defines Pareto efficiency and asks whether specific allocations of goods in an exchange economy are Pareto efficient or not.

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    © All Rights Reserved
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    Exchange Economies Ps

    Uploaded by

    bobbyy222
    11 views1 page
    This document contains two homework problems related to intermediate microeconomics concepts. The first problem modifies an exchange economy model from class and asks how changes to endowments or preferences impact equilibrium prices. The second problem defines Pareto efficiency and asks whether specific allocations of goods in an exchange economy are Pareto efficient or not.

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    This document contains two homework problems related to intermediate microeconomics concepts. The first problem modifies an exchange economy model from class and asks how changes to endowments or preferences impact equilibrium prices. The second problem defines Pareto efficiency and asks whether specific allocations of goods in an exchange economy are Pareto efficient or not.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    11 views1 page

    Exchange Economies Ps

    Uploaded by

    bobbyy222
    This document contains two homework problems related to intermediate microeconomics concepts. The first problem modifies an exchange economy model from class and asks how changes to endowments or preferences impact equilibrium prices. The second problem defines Pareto efficiency and asks whether specific allocations of goods in an exchange economy are Pareto efficient or not.

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    © All Rights Reserved
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    Intermediate Microeconomics - Exchange Economies Problem Set

    1. Homework associated to Exchange Economy video


    (a) Suppose we modify the exchange economy presented in the video such that now (x
    0
    A
    , y
    0
    A
    ) =
    (2, 0) and (x
    0
    B
    , y
    0
    B
    ) = (0, 4) Recalculate the new equilibrium price p
    e
    X
    . Compare it with
    the previous one. What does this result tell us about the relationship between equilibrium
    prices and endowments in an exchange economy?
    (b) Suppose now that the endowment is the same as in (a) and there is a change in consumers
    preferences such that now U
    A
    = x
    1/2
    A
    y
    A
    and U
    B
    = x
    1/2
    B
    y
    B
    . Note that now both consumers
    preferences are relatively more inclined towards good y. Calculate the new equilibrium
    price p
    e
    X
    . What does this result tell us about the relationship between equilibrium prices
    and preferences in an exchange economy?
    2. Homework associated to First Welfare Theorem video
    (a) Dene with your own words what is Pareto Eciency. (see section 15.3 in SF book)
    (b) Lets take the exchange economy shown in the exchange economy videos with the only
    dierence being that total initial endowment in the economy is given by (X
    0
    , Y
    0
    ) =
    (10, 10). Determine if each one of the following allocations are Pareto Ecient or not:
    i. (x
    A
    , y
    A
    ) = (4, 8) and (x
    B
    , y
    B
    ) = (5, 2)
    ii. (x
    A
    , y
    A
    ) = (0, 0) and (x
    B
    , y
    B
    ) = (10, 10)
    iii. (x
    A
    , y
    A
    ) and (x
    B
    , y
    B
    ) are such that both consumers are maximizing utility at a given
    set of prices (p
    x
    , p
    y
    ) and we have that x
    A
    +x
    B
    = 10 and y
    A
    +y
    B
    = 10.
    1

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