Re: Re:vasudha isi 2012 ME II

Posted by duck on Mar 11, 2012; 2:15pm
URL: http://discussion-forum.276.s1.nabble.com/isi-2012-ME-II-tp7354815p7363051.html

Ok let me try once more.. :)
Its given:
Agent 1's consumption: {lamda*w1 , lamba*w2}
Therefore, Uitlity of Agent 1 = (lamda)^2 *w1*w2
Set of points which are better for him can be obtained by increasing lamda.

Agent 2's consumption: {(1-lamda)*w1 , {1-lamda)*w2 }
Therefore, Uitlity of Agent 2 = (1-lamda)^2 *w1*w2
Set of points which are better for him can be obtained by decreasing lamda.

Therefore, no allocation can be reached where both are better or one is strictly better off while other is atleast as well off.
Hence, PE allocation.

Other way>
Find out the PE points of this economy by equating MRS of both individuals and you'll see that the given allocation in the question is PE.