Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed
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.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored 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

Human Resources In The Urban Economy

Authors: Mark Perlman

1st Edition

1317332474, 9781317332473

Students also viewed these Economics questions

Question

The quality of the proposed ideas

Answered: 1 week ago

Question

The number of new ideas that emerge

Answered: 1 week ago