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Consider the economy described in problem 2 of the previous problem set. 1. Find a competitive equilibrium of this economy. 2. Depict this equilibrium in
Consider the economy described in problem 2 of the previous problem set. 1. Find a competitive equilibrium of this economy. 2. Depict this equilibrium in an Edgeworth box. Your diagram should include the endow- ment, the equilibrium allocation, each agent's indifference curve through their equilib- rium allocation, and a budget constraint. 3. A social planner proposes splitting the aggregate endowment of each good equally between the two agents in an attempt to achieve a fair outcome. Add this allocation and the corresponding indifference curves to the diagram from the previous part. 4. Is the allocation proposed by the planner efficient? If not, propose a trade between the two agents that would make both better off. (Your trade should include specific quantities of each good and specify who gives and who receives each good.)
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