Question

In: Economics

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 UA(xA; yA) = xAyA, and individual B has utility function UB(xB; yB) = xByB. 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

yA = 0.5xA

yA = 2xA

yA = 5xA

yA = xA

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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