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General Equilibrium Problem Set EC202

The document outlines an in-class problem set for EC202 at the University of Warwick, focusing on general equilibrium in pure exchange economies. It presents two scenarios involving two individuals, A and B, with specific utility functions and initial endowments, requiring students to graph Edgeworth boxes and find Pareto efficient allocations. The problems aim to enhance understanding of economic concepts related to exchange and efficiency.

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corentin7879
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3 views1 page

General Equilibrium Problem Set EC202

The document outlines an in-class problem set for EC202 at the University of Warwick, focusing on general equilibrium in pure exchange economies. It presents two scenarios involving two individuals, A and B, with specific utility functions and initial endowments, requiring students to graph Edgeworth boxes and find Pareto efficient allocations. The problems aim to enhance understanding of economic concepts related to exchange and efficiency.

Uploaded by

corentin7879
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

EC202

In Class Problem Set 2

General Equilibrium: Pure Exchange Economies

Department of Economics
University of Warwick
2025–26

1. In an exchange economy with two people A and B, and two goods, 1 and 2, suppose the
utility functions of A and B are given by

UA (xA ) = xA A
1 x2 and UB (xB ) = 2xB B
1 + x2 .

The initial endowments are given by

ωA = (10, 0) and ωB = (0, 10).

(a) Graph the Edgeworth box to represent the economy.


(b) Find the Pareto efficient allocations. Where is the core?

2. In an exchange economy with two people A and B, and two goods, 1 and 2, suppose the
utility functions of A and B are given by

UA (xA ) = ln(xA A
1 + 1) + x2 and UB (xB ) = xB B
1 + 9x2 .

The initial endowments are given by

ωA = (4, 2) and ωB = (3, 5).

(a) Graph the Edgeworth box to represent the economy.


(b) Solve for the Pareto efficient allocations.

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