Consider an exchange economy with two individuals, A and B, and two goods, x and y....

Consider an exchange economy with two individuals, A and B, and two goods, x and y. Individual A has utility function U_A(x_A; y_A) = x_Ay_A, and individual B has utility function U_B(x_B; y_B) = x_By_B. If there are 10 units of x and 10 units of y in the market, what is the equation of the contract curve?

Group of answer choices

y_A = 0.5x_A

y_A = 2x_A

y_A = 5x_A

y_A = x_A

Solutions

Expert Solution

The correct answer is (d) yA= xA

A contract curve shows all pareto effecient bundles.

Refer to the working below to know how to derive the answer:

Rahul Sunny answered 1 year ago

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