Edgeworth Box

PROBLEM #5 The graph on the next page shows the Edgeworth box, and indifference curves, for two people, Melissa (M) and Norton (N). Each person starts with an endowment of Good X and Good Y. The origin for Melissa's indifference curves (OM) is in the lower left comer, and her indifference curves increase to the northeast from that point. The origin for Norton's indifference curves (UN) is in the upper right corner; his indifference curves increase to the \"southwest\" (moving in the direction towards the origin of Melissa's indifference curves). The current endowment for this small economy is at point A. a. Briey explain why Melissa and Norton can potentially gain from trade, starting from point A. Be sure to include the concept of the marginal rate of substitution in your answer. b. Briey explain why the point B represents a re-allocation of the endowment (a trade) that will make both Melissa and Norton better off than at point A. c. Once at point E, briey explain why any further trading would make at least one person worse off than at point B. d. Returning to point A as the starting point, explain why point B would not represent a mutually benecial trade. Who would be better off, and who would be worse off, at point B as compared to point A? \f