![[Pasted image 20240512221239.png]] The problem presented discusses an economic scenario involving two consumers with altruistic behaviors in an exchange economy. In this setup, each consumer’s utility depends not only on their own consumption but also on the happiness of the other consumer, which is affected by their consumption. The solution to the problem suggests that a competitive equilibrium in such a scenario is unsustainable. This is primarily because one consumer (Consumer 1) has a utility function that places significant weight on the happiness generated from the other consumer’s (Consumer 2) consumption. If Consumer 1 controls most of the resources or endowment, the competitive equilibrium results in Consumer 1 consuming most of the resources while placing less emphasis on their own direct consumption. This results in an imbalance where Consumer 1, despite being altruistic, unintentionally ends up with most resources, undermining Consumer 2's potential happiness and consumption. The problem illustrates that without a balanced approach to resource distribution, even well-meaning altruistic intentions can lead to suboptimal outcomes for all parties involved. Consumer 1's overwhelming focus on Consumer 2's happiness, combined with a higher control of resources, leads to a Pareto inefficient allocation where neither consumer might reach their maximum potential welfare. This highlights the complexity and potential pitfalls in scenarios where individual utility is heavily dependent on the welfare of others, emphasizing the need for careful consideration of resource distribution and consumption impacts in altruistic contexts.