Re: General Equilibrium Question

Posted by Ayushya Kaul on May 15, 2013; 5:44pm
URL: http://discussion-forum.276.s1.nabble.com/General-Equilibrium-Question-tp7580742p7580754.html

Any idea about this:
2. Consider a bilateral transaction where buyer B has valuation vB > 0 and
seller S has valuation 0. Utility of the agents are as follows. Utility of B is
(vB- pB^1/2) and utility of S is pS, where pB denotes the price that B pays and
pS denotes the price S receives. Note that, pB need not be equal to pS, but of
course pB>= pS.
(a) Find the set of feasible allocations.
(b) Draw a diagram where utility of B is plotted on the horizontal axis and
utility of S is plotted on the vertical axis. Show the set of feasible allocations
in this two-dimensional utility space. This is called the utility possibility set.
(c) Identify Pareto optimal allocations in the utility possibility set.
(d) Identify utilitarian allocations in the utility possibility set.