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[solution] » In an exchange economy with consumers U 1 =X 1 Y 1 2 and U 2

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In an exchange economy with consumers U 1 =X 1 Y 1 2 and U 2
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  1. In an exchange economy with consumers U1=X1Y12  and U2=min(X2, 2Y2)+aY1 , and endowments  e1=(3,5) and e2=(6,2)

    A.

    None of the three answers is true.

    B.

    If a>0, then there is a bad externality on consumer 2.

    C.

    If a>0, then there is a good externality on consumer 1.


    D.

    Equilibrium is Pareto Efficient.


 







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