Consider the Edgeworth box below, which represents the amount of tea and crumpets available to Eliza and
Question:
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a. Suppose that Eliza and Henry are currently at point A. How many servings of tea and how many crumpets are each enjoying?
b. Suppose that while Eliza is using the powder room, Henry takes 4 cups of tea from Eliza. Feeling guilty, he leaves 2 of his crumpets on her nightstand before hastily making his exit. Show that this reallocation of tea and crumpets is a Pareto improvement.
c. Show that if Henry had left only 1 crumpet on Eliza's nightstand, the reallocation would not have represented a Pareto improvement.
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a Eliza is enjoying 5 servings of tea and 2 crumpets Henry is enjoying 1 serving of tea and 5 cru...View the full answer
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Related Book For 
Microeconomics
ISBN: 9781464146978
1st Edition
Authors: Austan Goolsbee, Steven Levitt, Chad Syverson
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