Consider an exchange economy with 2 agents and 2 goods.

a) In an Edgeworth-Bowley diagram, show and illustrate that if both agents have the same preferences, the contract curve is a straight line from the bottom left-hand corner to the top right-hand corner. Explain. (3)

b) Does it follow that if the agents do not have the same preferences, the contract curve isnot a straight line? Explain. (2)

c) Suppose the two agents have the same endowments and the same preferences. Is mutually beneficial trade possible? Illustrate in an Edgeworth Bowley diagram. Explain. (2)

d) State and explain Walras Law. What are the implications of Walras's Law? Illustrate Walras Law in an Edgeworth-Bowley diagram. Explain. (3)