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Set of feasible stationary allocations

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Reference no: EM13888028

Consider a Samuelson model with one commodity in each period and where the endowment of every consumer is e = (1, 0). Let the utility function of every consumer be u(x0 , x1) = x0  + 2x1.

(a) Draw a diagram that shows the set of feasible stationary allocations, the endowment, and sample indifference curves.

(b) Indicate on a second copy of the diagram which of the feasible stationary allocations are Pareto optimal.

(c) Compute a stationary spot price equilibrium, (x0 , x1, P , r , G, T), for this economy with positive interest rate rand with P = 1.

(d) State a social welfare maximization problem that is solved by the allocation of the stationary spot price equilibrium that you just found.

Reference no: EM13888028

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