Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Alex and Brenda have the following utility functions over cake and diamonds: UA(CA.DA) = (CAXDA) US$3.03) = (CBXDB) Total cake and diamond endowments in the
Alex and Brenda have the following utility functions over cake and diamonds: UA(CA.DA) = (CAXDA) US$3.03) = (CBXDB) Total cake and diamond endowments in the economy are we = 20 and w; = 10. . . . . 1 The contract-cu rye for this economy is the set of allocations that satisfy DA = E CA. It is a diagonal line going from corner to corner of the Edgeworth Box. A Walrasian auctioneer will call out prices pc and p0 and will equate supply and demand in the market of each good until allocations reach an equilibrium. Part 1. You are a central authority who desires the equilibrium allocations to be as "fair\" as possible, that is, you want C\"1 = 6*3 = 10 and D\" = D*3 = 5, so that Alex and Brenda each end up with half the total endowments of both goods. You know this point lies on the contract-curve because D\" = $0\
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started