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[12 marks] Person A and Person B both consume the same goods in a pure exchange economy. A is originally endowed with 31 units of

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[12 marks] Person A and Person B both consume the same goods in a pure exchange economy. A is originally endowed with 31 units of good 1 and 4 units of good 2. B is originally endowed with 69 units of good 1 and 16 units of good 2. They both have the utility function U (x1, X2) = x13 x2. x23. We let good 1 be the numeraire. 1. [4 marks] Draw the Edgeworth box with good 1 on the horizontal axis. The quantities of person A is measured from the lower left corner and the quantities of person B is measured from the upper right corner. Mark the initial endowment and label it with E. Draw the indifference curves that passes through the endowment point for both agents. Don't forget to label all axis. 2. [3 marks] Determine the equation to satisfy for every Pareto optimal allocation where both consume positive amounts of both goods. Draw the locus of Pareto optimal allocations. 3. [5 marks] What is the price of good 2 in competitive equilibrium? At the equilibrium prices, how many units of good 2 each agent consume. Show your equilibrium point on your Edgeworth box and label it with X. DO Paragraph V BIU

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