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       #Post#: 23--------------------------------------------------
       Q3
   DIR By: Julia.Wirtz
       Date: November 22, 2012, 7:13 am
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       I'm posting a question I got per email and my answer:
       Question
       In question 3 (d), the model answer shows that assets are
       complete
       unless a=b=1, but I think the necessary condition for the
       completeness
       is only ab=1.
       How can we derive a=b=1.
       And I though that the importance of completeness is that the
       households cannot achieve every allocation of income with the
       combination of assets unless the assets are complete.
       Because there was no answer about the importance in model
       answer,
       could you supplement my answer?
       Answer
       Oh, Ben made a mistake here in the model answers. The correct
       answer is the assets are
       complete, unless a*b=1. The assets shouldn't be linearly
       dependent.
       Your explanation is almost correct. If the assets are linearly
       dependent, they are basically the same asset. Both only allow
       you to
       buy or sell the two goods (i.e. the good in 2 states) in a fixed
       ratio. So you cannot achieve every possible allocation of the
       GOOD
       (not income) in 2 states.
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