Consider an exchange economy with the same two agents and utility functions as the last three questions, but now the endowments are and . Which of the following pre-trade lump-sum transfers of wealth will lead to allocations and and prices being a competitive equilibrium?
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Consider an exchange economy with the same two agents and utility functions as the last three questions, but now the endowments are (0,1) and (2,0). Which of the following pre-trade lump-sum transfers of wealth will lead to allocations (x₁,y₁)=(1,1) and (x₂,y₂)=(1,0) and prices (p₁,p₂)=(1,1) being a competitive equilibrium? (A) subsidies of 1 to both persons (B) taxes of 1 on both persons (C) a subsidy of 1 to person 1 and a tax of 1 on person 2 (D) a subsidy of 1 to person 2 and a tax of 1 on person 1
Also written as: Consider an exchange economy with the same two agents and utility functions as the last three questions, but now the endowments are (0,1) and (2,0). Which of the following pre-trade lump-sum transfers of wealth will lead to allocations (x_1,y_1)=(1,1) and (x_2,y_2)=(1,0) and prices (p_1,p_2)=(1,1) being a competitive equilibrium?
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 2008 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.