As always, if you have any questions on this assignment, please post them as a comment to this post.

Last year students expressed interest in having some background materials on these matters, either for viewing ahead of time before looking at this homework, or afterward, to see if you were making good sense of the assignment. I last taught intermediate micro in spring 2011. For that offering I did make a lot of content that you are welcome to peruse. If you do access this stuff, I would be interested in learning whether you found it useful.

__Partial Equilibrium Approach - Social Surplus__

**YouTube Videos**

Social Surplus Basics

Allocating Surplus in the Presence of a Unit Tax

Allocating Surplus - Monopoly

**Excel Workbook**

Cost-Benefit Analysis.xlsx

__General Equilibrium/Edgeworth Box Approach__

**YouTube Videos**

Welcome and Deconstruction

Barter

Consumer A's Choice

Existence and Uniqueness of Competitive Equilibrium

Pareto Improvement

First and Second Welfare Theorems

**Excel Workbook**

Edgeworth Box.xlsx

**Word Document**

Notes on General Equilibrium.docx

I’m having trouble finding the allocation of A at Pareto Optimal allocation for the last question on the homework. I know that the MRS of both A and B must be equal at Pareto Optimal, but I do not know where to go from there in finding the allocation points.

ReplyDeleteYou are right that the two MRS must be the same. The other fact to use is that A's allocation plus B's allocation adds up to the total endowment. If Xtotal is the total endowment of X, then XA + XB = Xtotal.

ReplyDeleteLikewise YA + YB = Ytotal. You can then this two equations to reduce the problem from 4 variables, XA, YA, XB, YB, down to two variables. In other words,you can right B's MRS in terms of A's allocation. Then when you equate the MRS of the two agents, you solve for YA in terms of XA. That is just what you need to answer the question.