Consider a pure-exchange economy with two goods {1, 2} and two consumers {A, B}. A and B wish to trade with one another to maximize their individual utilities. Suppose A is endowed with 1 unit of good 1 and half a unit of good 2, i.e., A = (1, 1 2 ). B is endowed with a half unit of good 1 and 1 unit of good 2, i.e., B = ( 1 2 , 1). In addition, suppose their utility functions are given by uA(x A) = (x A 1 )(x A 2 ) uB(x B) = (x B 1 ) 1/5 (x B 2 ) 4/5

(1)

Draw an Edgeworth box indicating the endowment and preferences for this problem. (2) Find the set of Pareto optimal allocations of this economy