Consider an economy with two goods, x and y, and two agents, Anna and Bert. Anna...

Consider an economy with two goods, x and y, and two agents, Anna and Bert. Anna and Bert wish to trade with one another in order to maximize their individual utilities. We will consider how their trading decisions depend on the initial endowments of X and Y and on their utility functions. Suppose Anna is endowed with one unit of X and half a unit of Y and Bert is endowed with one unit of X and one and a half units of Y. Their utility functions are given by: ?_A=?? ?_B=?+2?

(a)Draw an Edgeworth box indicating the endowment and preferences of this problem.

(b)Find the det of Pareto Optimal Allocations in this economy and draw this in the Edgeworth box. What is this set of points called?

(c)Find the equilibrium and consumption of x and y by Anna and Bert in this economy and determine the price ratio that supports this equilibrium.

(d)Will this equilibrium allocation be Pareto Efficient?

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Expert Solution

Rahul Sunny answered 1 year ago

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