Example 2 allocating resources across different states 1. Consider an individual, who lives for two dates: now(t=0)and later (t=1). Att=l, the economy can be in state a and state b 2. She is endowed with 100 in state a and 25 in state b 3. Her happiness (utility) depends on her consumption in the two possible state: Ca, and Cb 4. She prefer similar consumption level in the two states 5. There are a financial market where the price of a security that pays only if state a occurs is the same as that of a security that pays l only if state b occursExample 2 allocating resources across different states 1. Consider an individual, who lives for two dates: now (t=0) and later (t=1). At t=1, the economy can be in state a and state b; 2. She is endowed with 100 in state a and 25 in state b; 3. Her happiness (utility) depends on her consumption in the two possible state: C a, and C b, 4. She prefer similar consumption level in the two states; 5. There are a financial market where the price of a security that pays 1 only if state a occurs is the same as that of a security that pays 1 only if state b occurs;