(Perloff)

Robinson starts out with 10 lobsters and five coconuts. Friday starts out with 10 lobsters and 15 coconuts. Their preferences are such that they can still benefit from trade.

Draw the Edgeworth Box, paying attention to the dimensions of the box. Put Robinson in the southwest and Friday in the northeast. Label the point illustrating the endowment.

After trading, Robinson ends up with eight lobsters and 10 coconuts. Robinson feels neither better nor worse off than when he started but cannot get Friday to agree to any more trades. Draw indifference curves consistent with this. How many lobsters and coconuts does Friday have?

Was the trade a Pareto improvement? Explain.

Did the trade put them on the contract curve (at a Pareto optimum)? Explain.

Shade in the lens.