MOCK EXAM PAPER ECON342
2024-2025
ANSWER ALL QUESTIONS
QUESTIONS CARRY EQUAL WEIGHT
QUESTION 1
Consider the following two-person, two-commodity exchange economy, in which individualsíutility func- tions areas follows for every allocation x = ((x11 ; x12 ); (x21 ; x22 )) ∈ R4+:
u1 (x11 ; x12 ) = x11
u2 (x21 ; x22 ) = x21 x22.
Person 1síendowment is w1 = (0; 1), and person 2ís endowment is w2 = (1; 0).
1. Characterize the set of Pareto efficient allocations. (15 points)
2. Show that the allocation that assigns (0:5; 0) to person 1 and (0:5; 1) to person 2 is Pareto e¢ cient. (10 points)
3. Show that the allocation described in part 2) is a competitive equilibrium outcome for some price system and some distribution of wealth (25 points).
QUESTION 2
Define the Top-Trading Cycle algorithm (10 points). Explain the property of strategy-proof (10 points). Show that the Top-Trading Cycle algorithm satisfies this property (30 points).