Step-by-step solution file
In an exchange economy with consumers U 1 =X 1 Y 1 2 and U 2
In an exchange economy with consumers U1=X1Y12 and U2=min(X2, 2Y2)+aY1 , and endowments e1=(3,5) and e2=(6,2)
None of the three answers is true.
If a>0, then there is a bad externality on consumer 2.
If a>0, then there is a good externality on consumer 1.
Equilibrium is Pareto Efficient.
This question was answered on: Feb 21, 2020
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