Answer to Question #154467 in Microeconomics for Ravi

Question

Consider a competitive exchange economy: two agents (A and B) and two goods (X and Y). The utility function of the agent is given by u(xi, yi) = xiyi where i ϵ {A, B} and xi, yi are consumption of good X by agent i and good Y by agent i respectively. Agent A’s endowment of good X and Y are (1,1) and Agent A’s endowment of good X and Y are (2,1). Which of the following is a set of Pareto efficient allocations?

a) xA = 1, yA = 1 and xB = 2, yB = 1

b) xA = 1, yA = 0 and xB = 2, yB = 2

c) xA = 1.5, yA = 1and xB = 1.5, yB = 1

d) None of the above

Answer 1

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