Consider an economy with two people, Henry and Catherine, who consume two commodities, bread and water. Suppose

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Consider an economy with two people, Henry and Catherine, who consume two commodities, bread and water. Suppose that, due to a drought, the authorities decide to allocate exactly half the available water to each person. In order to prevent one person from "exploiting" the other, neither person may trade away any water to the other in exchange for more bread. Set up an Edgeworth Box to depict this situation and explain why it is unlikely to be Pareto efficient.

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Public Finance

ISBN: 9780073511283

8th Edition

Authors: Harvey Rosen, Ted Gayer

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