12. Consider the Edgeworth box below, which represents the amount of tea and crumpets available to Eliza and Henry.

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.

Transcribed Image Text:

Eliza's tea 4 3 2 1 6 5 Henry's crumpets 7 6 5 4 3 A 2 1 0 . :: 0 1 2 3 4 5 6 7 Eliza's crumpets 6 4 50 2 3 Henry's tea