Which of the following statements is not true about the pareto-improving lens? Represents all the potential pareto-improvements over a player's endowment Conflicts of interest are completely eliminated in the allocations within the lens. Represents the potential economic surplus to be gained from trade between the two players Pareto-inefficient outcomes can exist within it
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Which of the following statements is not true about the pareto-improving lens?
- Represents all the potential pareto-improvements over a player's endowment
- Conflicts of interest are completely eliminated in the allocations within the lens.
- Represents the potential economic surplus to be
gained from trade between the two players - Pareto-inefficient outcomes can exist within it
Step by step
Solved in 2 steps
- Consider 2 - person ( A and B ) and 2 good ( x , y ) economy . A 's endowment is ( 0 , 1 ) while B 's endowment is ( 0 , 2 ) . B considers x and y to be perfect substitutes while A lexicographically prefers x to y. The competitive equilibrium allocation for this economy is ( a ) A gets ( 0 , 1 ) and B gets ( 2 , 0 ) ( b ) A gets ( 2 , 0 ) and B gets ( 0 , 1 ) ( c ) A gets ( 1.5 , 0 ) and B gets ( 0.5 , 1 ) ( d ) A gets ( 1 , 0 ) and B gets ( 1 , 1 )Consider, U1(x1, y1) = 2(x1y1) 4 + 20 U2(x2, y2) = 10lnx2 + 4lny2 W1 = (2, 1) and W2 = (1, 2) 1.1 Characterize the Pareto efficient allocations and contract curve. 1.2 Which allocations are in the core? 1.3 Find the Competitive/Walrasian equilibrium for this problem. 1.4 Is the answer of 1.3 in the core?In Problem 25, under what conditions is a pooling equilibrium possible? Problem 25 Education is a continuous variable, where is the years of schooling of a high-ability worker and is the years of schooling of a lower-ability worker. The cost per period of education for these types of workers is respectively, where The wages they receive if employers can tell them apart are And Under what conditions is a separating equilibrium possible? How much education will each type of worker get?
- 1. Consider the following pure exchange economy consisting of two consumers with the following utility functions and initial endowments: uz (X11, X12) = X11 +x12 uz(X21, X22) = x21 + X22 W1 = (3,1) W2 = (1,3) a. Find the set of Pareto optimal allocations, PO(Ep). (12p) b. Find the set of individually rational allocations, IR(Ep). (12p) c. Find the set of core allocations, C(Ep). (10p)Which of the following statements is not true about the utility possibilities frontier It shows utility levels that are attainable, given the utility functions of each player. It's a type of feasible frontier. It shows the utility each player receives from all pareto-efficient outcomes. It is constructed from the pareto-efficient curve.In an Edgeworth box, illustrate that a Pareto-efficient equilibrium, point a, can be obtained by competition, given an appropriate endowment. Do so by identifying an initial endowment point, b, located somewhere other than at point a, such that the competitive equilibrium (resulting from competitive exchange) is bundle a. Explain. Consider the Edgeworth Box illustrated in the figure to the right. I is one of Jane's indifference curves and Px is one of Denise's indifference curves. The price of good X and good Y is represented by Py Using the point drawing tool, indicate an endowment located anywhere other than at point a such that the competitive equilibrium is bundle a. Label this endowment 'b." Carefully follow the instructions above, and only draw the required object. Bundle b is an endowment such that the competitive equilibrium is bundle a because Good X O A. bundleb is a Pareto-efficient point. O B. the slope of the price line equals the slope of the indifference curves at bundle…
- Question 2: Consider a competitive exchange economy with two individuals (A and B) and two goods (F and W). The total endowments of F and W are 10 each. Consumer A has the following utility function: UA = FW while consumer B has preferences such that she must have one unit of F for every unit of W. (a) Derive an expression for the contract curve and illustrate in an Edgeworth box dia- gram. (b) What is the relative price of F, PF/Pw, in a competitive equilibrium? (c) Now suppose that consumer B's utility function is UB = F +2W Let consumer A's utility function remain unchanged. Derive an expression for the con- tract curve now and illustrate in a new Edgeworth box diagram. (d) What is the relative price of F, Pr/Pw, in a competitive equilibrium?Alice is the global marketing director for a multinational electronics manufacturing firm. She is assigned with the task of expanding the firm to large and growing international markets. Which of the following factors of international trade will benefit Alice's company a) International trade will provide the company with a comparative advantage. b) The company will benefit from the inflow of new, innovative ideas. C The company will benefit from a balance of trade. ) d) International trade will provide the company with an absolute advantage.Consider a pure exchange economy with two goods, z and y, and three consumers, 1, 2, and 3. The consumer's utility functions are respectively. The endowments are (3,1) for consumer 1, (3,6) for consumer 2, and (2, 4) for consumer 3. (a) Find the aggregate excess demand for each good. You may use Marshallian demands derived earlier in the course. Solution: If the prices of the two goods are p₁ and p2, then the three consumers have wealths 3p1 +p2, 3p1 +6p2, and 2p1 +4p2 respectively. Using the Marshallian demands for Cobb-Douglas utilities with these levels of wealth, we find that the aggregate excess demand for Good 1 is 21(P₁.P2)- = and for Good 2 is u¹(x, y) = x²y u²(x, y) = xy² u³(z. y) = xy = 22(P1, p2) = = 6p1+2p2 3p1+6p22p1+4p2 3p1 14p2 3p₁ 3p₁ + P2 3p₂ + 4P₁ 14 P2 3 3p₁ 6p₁ + 12p2 2p₁ +4P2 + 3p₂ 2p2 (b) Show that your answer for part (a) satisfies Walras' Law. Solution: For each (p1, p2), we have 2p₁ 8 = -11 P1²1(P₁-P2) + P2²2(P₁-P2) = 14P² − 4p₁ +4P₁ - P2 = 14 = 0. (e) Find all…
- General Equilibrium Consider, U1(x1, y1) = 5(x1y1) 3 + 12 U2(x2, y2) = 3lnx2 + 25lny2 + 10 W1 = (7, 3) and W2 = (4, 6) a. Characterize the Pareto efficient allocations and contract curve b. Which allocations are in the core ? c. Find the Competitive/Walrasian equilibrium for this problem . d. Is the allocation found in c in the core? Why?Question 3 Krugman Model: Suppose that the elasticity of substitution between vari- eties of a differentiated good is o = 3. The marginal cost of production is c = 2, the fixed cost of operating a business is f = 10. There are two countries, H and F, that initally do not trade. The countries differ only in the size of their economies with EH 100 > EF = 50. All the Krugman model assumptions hold regarding preferences, monopolistic competition, free entry, etc. = Starting from the closed economy, answer the following. a. Profits: Using A to denote the level of demand preceived by a typical firm in H, write the typical firm's profit function. Plug in the relevant numbers for the elasticity of substitution, the marginal cost, and the fixed cost, leaving AH as a constant. b. Profit Maximization: Take the derivative of the profit function and solve the first order condition for the optimal price. What is the optimal price charged? c. Free Entry: Now solve for the total number of entrants…Joe has moved to a small town with only one golf course. His demand curve is P = 120 – 2Q where Q is the number of rounds of golf he plays per year. The manager of the golf course offers Joe a special deal, where Joe pays an annual membership fee and can play as many rounds of golf as he wants to at $20 per round. The golf course’s Marginal Cost is $20. (a) If the golf course wishes to implement a two-part pricing model, what membership fee will maximize revenue for the golf course? Please show your calculations. (b) How many rounds of golf will Joe play per year (calculate the value of Q*)? Please explain. (c) Would someone who just occasionally plays golf (perhaps 1 or 2 rounds once every 2 months) prefer two-part pricing as given above, or would they prefer to pay a price of $100 per round without any membership fee? Please explain.