ECO206Y1 Lecture Notes - Lecture 3: Bargaining Problem, Social Welfare Function, Externality

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6 Jul 2016
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Problem set for lecture 3 welfare and externalities. Consider the consumers in asymmetric cobb douglas economy problem in the lecture 1 with ui (x, y) = i. The economy starts with 10 units of x and 10 units of y. The social welfare function is us = min {u1, u2}: find the utility possibility frontier, find the allocation that maximizes the social welfare. Consider example in the lecture with two consumers both with u (x, y) = x y, and with 10 units of x and y at the beginning. The social welfare function now favors player a twice as much: us = 2ua + ub: find the utility possibility frontier, find the allocation that maximizes the social welfare. 3 nash bargaining problem with circular feasibility set. Consider the nash bargaining problem with feasibility set u2. B r2 and disagreement point (0, 0): find the nash bargaining solution.

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