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4. (15 pts.) Suppose that Anne and Bart can trade with each other. Anne's utility function is UA(XA, VA) = XAVA and Bart's utility function
4. (15 pts.) Suppose that Anne and Bart can trade with each other. Anne's utility function is UA(XA, VA) = XAVA and Bart's utility function is UB (XB, VB) = min (3XB, 2yB) where XA and yA are Anne's consumption of x and y, while XB and yB are Bart's consumption of x and y. Anne is endowed with 2 of x and 9 of y, and Bart is endowed with 8 of x and 6 of y. a) Draw an edgeworth box, showing the initial endowment allocation, e, and Anne's and Bart's indifference curves going through point e. (3 pts.) b) What are the pareto efficient allocations? (4 pts.) c) What are the competitive equilibrium price ratio (or prices) and its allocation ((xA, YA), (XB, VB) )? (5 pts.) d) Describe the equilibrium trade between Anne and Bart that gets the allocation from the initial endowment e to the competitive equilibrium allocation and show that the trade is consistent with the price ratio from part c). (3 pts.)
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