Consider two consumers (Ann and Bob) who trade apples and broccoli. Before trading,

Ann owns 8 pounds of apples and 2 pounds of broccoli. Bob, on the other hand, owns

2 pounds of apples and 8 pounds of broccoli. Ann's preferences are represented by the

utility function uA(aA, bA) = 2aA + 5bA. Bob's preferences are represented by the utility

function uB(aB, bB) = aBbB.

(a) Draw an Edgeworth box representing this economy. Clearly label the initial endow-

ment and highlight the set of feasible allocations that Pareto dominates it (these are

the feasible allocations that can be reached through voluntary trade).

(b) Find the set of feasible allocations that are Pareto efficient. Explain how you obtained

it. Describe the set mathematically and mark it on the Edgeworth box.

(c) Compute the competitive equilibrium prices and the associated allocations. Are equi-

librium allocations Pareto efficient?