7.

a

)

In an Edgeworth box,

draw an indifference cu

rve for Shelly that has a concave

portion in the middle (i

.e. she prefers to specialize). Marvin has strictly convex

preferences.

D

raw an indifference curve for Marvin that is tangent to Shelly's at one

point and intersects her indifference curve at two other points.

b)

Identify the competitive equilibriu

m in your graph.

Is this allocation Pareto

-

Efficient?

Explain.

c)

Is your answer to (b) consistent with the First Welfare Theorem? Expla