Question

Use the following information for Q4 and 25. There are two consumers A and B with the following utility functions and endowments: UA (XA, YA) = x A +aya, (W2A, WyA) = (1,2) UB(XB, YB) = {b + yb, wzB, WyB) = (2, 1) where a>1, X; and Yi denote the consumption of goods x and y for consumer i, and (Wri, Wyi) denote the endowment of goods x and y for consumer i. Q4: True or false. At any point on the contract curve, the two consumers' indifference curves have the same slope. Select one: O True O False

Answer 1

Q1) false

For A, slope of IC = MRS_A = 1/a

For B , slope of IC = 1

So the two slopes are always different

.

Q2) option B)

since preferences are not strictly Convex so, second welfare theorem doesn't hold

D is true

For any prices, of Px between (1/a) & 1, ( & if py= 1)

CE exists , so C is true

Only corner solution exist, so no multilple eqm exist

B is false