Consider the following two person-two good pure exchange economy: Adam's utility function is UA(x, y) = 2x
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Question:
Consider the following two person-two good pure exchange economy: Adam's utility function is UA(x, y) = 2x + 3y and Bob's utility function is UB (x, y) = 2x + y. Suppose that Adam's initial endowment is Wa = (6, 0) and Bob's initial endowment is Wb = (0, 4).
- (a) (2 Points) Show that the initial endowments are NOT Pareto Efficient.
- (b) (4 Points) An allocation where Adam or Bob gets everything is Pareto Efficient. Give a different allocation that is Pareto Efficient.
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