A Small Economy Has Only Two Consumers, Charlie and Doreen

question 1

Multiple Choice

A small economy has only two consumers, Charlie and Doreen.Charlie's utility function is U(x, y) = x + 154y^1/2.Doreen's utility function is U(x, y) = x + 7y.At a Pareto optimal allocation in which both individuals consume some of each good, how much y does Charlie consume?

• A)121
• B)9
• C)22
• D)18
• E)We can't tell without knowing the initial endowments.

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Definitions:

Variance

A statistical measurement of the dispersion between numbers in a data set, measuring how far each number in the set is from the mean.

Volatility

Measures the degree of variation of a trading price series over time, indicating the level of uncertainty or risk associated with the size of changes in a security's value.

Unsystematic Risk

The risk associated with a specific issuer of a security or investment, which can be mitigated through diversification.

Diversification

A risk management strategy that mixes a wide variety of investments within a portfolio to minimize the impact of any single investment's performance.