To start with, consider an economy with no production. There are two consumers in the economy. Consumer 1 has an initial endowment of (130, 190) and has an MRS for these two goods of 2 Consumer 2 has an initial x1 endowment of (70, 60) and has an MRS for these two goods of 32. As with the last HW, decimal answers are possible. 1. Show that P = 1 is not a competitive equilibrium price but P = 2 is. 2. Draw an edgeworth box including the initial endowment, the CE allocation, the budget constraint, and the IC for both consumers through the CE allocation. Explain why we know the contract curve is not linear. 3. Suppose that person 2 is considered more important and should, therefore, have a bigger allocation of the goods. So now the initial endowment of person 2 is (96, 225). Show that the new competitive equilibrium allocation ends up with person 1 having (80, 62.5) and person 2 having (120, 187.5) and show that the new equilibrium price is no longer 2. 4. Now there is a change so (200, 250) is just one of many options along a PPF that has a MRT of 5x/2y. Show that now, the CE outcome in (1) is PE but the CE outcome in (3) is not. 5. If (176, 275) is also on the same PPF as the total endowment in #4, find the PE allocation of the goods between the individuals. (Note: This becomes a bit tedious with the algebra since you have to solve 4 equations and 4 unknowns. Just do some substituting. Be careful that when you combine to eliminate an equation, you must also eliminate an unknown. Also, all answers are exact to 2 decimal places)