Answered step by step
Verified Expert Solution
Link Copied!

Question

00
1 Approved Answer

3. (14 points) Suppose there are two consumers, A and B. The utility functions of each consumer are given by: UA(X, Y) = X10Yl/2 Us(X,

image text in transcribed
image text in transcribed
3. (14 points) Suppose there are two consumers, A and B. The utility functions of each consumer are given by: UA(X, Y) = X10Yl/2 Us(X, Y) = X+4Y The initial endowments are: A: X =4; Y=4 B: X = 12; Y =4 a) (8 points) Using an Edgeworth Box, graph the initial allocation (label it "W") and draw the indifference curve for each consumer that runs through the initial allocation. Be sure to label your graph carefully and accurately. b) (2 points) What is the marginal rate of substitution for consumer A at the initial allocation? c) (2 points) What is the marginal rate of substitution for consumer B at the initial allocation? d) (2 points) Is the initial allocation Pareto Efficient

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Microeconomics

Authors: Hal R. Varian

9th edition

978-0393123975, 393123979, 393123960, 978-0393919677, 393919676, 978-0393123968

Students also viewed these Economics questions