ECO206Y1 Lecture Notes - Lecture 1: Pareto Efficiency, Exchange Economy, Competitive Equilibrium

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6 Jul 2016
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Consider a pure exchange economy with two consumers 1 and 2. The two goods are consumption today x and consumption tomorrow y. Consumer 1 is more patient and values the future consumption more than the current consumption, and consumer 2 has the opposite preference. Let consumer i has preference ui (x, y) = x i. Consider a pure exchange economy with one good x and money y. Both consumers a and b has utility functions equal to the total dollar value of the good and the money, say ui (x, y) = y + log (x). Consumer a has 10 dollars but no goods, and consumer b has 10 goods but no money: find the expression for the set of pareto optimal allocations, find the competitive equilibrium. Consider a pure exchange economy with two goods: work x and money y. Both consumers hate work and love money, but consumer 2 hates work more than consumer 1.

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