Suppose there are two goods, X and Y, and many identical consumers. Production exhibits increasing costs.
Suppose there are two goods, X and Y, and many identical consumers. Production exhibits increasing costs.
(A) Illustrate and explan why Pareto efficiency requires that the marginal rate of transformation between the two goods equal the marginal rate of substitution.
(B)explain why the competitive equilibrium is a Pareto optimum.
(C) suppose now that the government taxes consumption of good X so that the price paid by consumers rises to Px(1+tx).Compare and Illustrate the equilibrium for this case relative to the competitive equilibrium.
