For the exchange economy with Agent endowment maximizing and Agent endowment maximizing : suppose the government imposes a lump-sum tax of Rs. on agent and transfers the receipts as a lump-sum subsidy of Rs. to agent . After this wealth transfer, an example of a competitive equilibrium is: prices and allocation
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For the exchange economy with Agent 1 endowment (100,100) maximizing min {x₁,y₁} and Agent 2 endowment (50,0) maximizing x₂+y₂: suppose the government imposes a lump-sum tax of Rs. 50 on agent 1 and transfers the receipts as a lump-sum subsidy of Rs. 50 to agent 2. After this wealth transfer, an example of a competitive equilibrium is: prices (p₁,p₂)=(1/2,1/2) and allocation (A) (x₁,y₁)=(100,100) and (x₂,y₂)=(50,0) (B) (x₁,y₁)=(50,50) and (x₂,y₂)=(100,50) (C) (x₁,y₁)=(0,100) and (x₂,y₂)=(150,0) (D) (x₁,y₁)=(100,0) and (x₂,y₂)=(50,100)
Also written as: For the exchange economy with Agent 1 endowment (100,100) maximizing min {x_1,y_1} and Agent 2 endowment (50,0) maximizing x_2+y_2: suppose the government imposes a lump-sum tax of Rs. 50 on agent 1 and transfers the receipts as a lump-sum subsidy of Rs. 50 to agent 2. After this wealth transfer, an example of a competitive equilibrium is: prices (p_1,p_2)=(1/2,1/2) and allocation
Welfare economics and social choice has come up 62 times in 6 exams since 2004.
This question is on The fundamental theorems of welfare economics, part of Welfare economics and social choice in Microeconomics.
When competitive markets deliver efficient outcomes and how transfers can reach any efficient outcome.
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Question from the DSE 2005 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.