Exercise 4

Exercise 4. (35 points) Consider a pureexchange economy with two goods {1, 2} and two consumers {A, B}. A and B wish to trade with one another to maximize their individual utilities. Suppose A is endowed with 1 unit of good 1 and half a unit of good 2, i.e., wA = (1, %). B is endowed with 1 unit of good 1 and 1.5 units of good 2, Le, mg 2 (1, g) In addition, suppose their utility functions are given by UA(33A) (mime?) \"3063) (is? )3\" 4(335 )1\" 4 (1) Draw an Edgeworth box indicating the endowment and preferences for this problem. (2) Find the set of Pareto optimal allocations of this economy. (3) Find the equilibrium consumptions of A and B and determine the equilibrium price ratio that supports them