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An economy consists of two consumers: Ann and Bob. They consume two goods, denoted by x1 and x2. Assume that the goods are perfectly divisible.
An economy" consists of two consumers: Ann and Bob. They consume two goods, denoted by x1 and x2. Assume that the goods are perfectly divisible. Initially, Ann has 30 units of x1 and 20 units of X2. Bob, on the other hand, has 20 units of x1 and 30 units of X2. Ann and Bob have the same preferences represented by the utility Function of ; u(X1, X2) = x NON/- 1. What are the total resources in the "economy"? Plot an Edgeworth box and show the allocations which reflect the initial endowments. 2. Provide a general definition of a Pareto-efficient allocation. Show formally whether the initial endowment allocations for Ann and Bob are Pareto- efficient using the consumers' MRS. 3. What is a contract curve? Calculate the contract curve for Ann and Bob and show it in the Edgeworth box
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