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Please help with these review problems from the book. Please show all work by hand. I GIVE GOOD POSITIVE RATINGS! 4. General Equilibrium Picture Time:

Please help with these review problems from the book. Please show all work by hand. I GIVE GOOD POSITIVE RATINGS!

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4. General Equilibrium Picture Time: Use Figure 1 to answer (a) and (b), and use Figure 2 to answer (c) and (d). Figure 1: Quantity of Y a. - 'i h. h ' lsoRev 1 "h in. i '. IsoRev2 Quantity of X xA x5 Figure 1 illustrates a Production Possibilities Frontier for goods X and Y, two parallel lso-Revenue Lines (the dashed lines) based on the initial prices Px and Py, and an indifference curve U1 representing consumer preferences for these goods. a. Why is point A not a sustainable equilibrium combination of goods X and Y at this price ratio? Why is point B not a sustainable equilibrium combination at this price ratio?(5) b. Suppose the absolute value of the slope of the iso-reven ue lines is 1/3. Do you think the ratio Px/Py will be greater or less than 1/3 at the equilibrium value of X and Y? Explain. (5) Figure 2 is an Edgeworth Box diagram, illustrating endowments and preferences for two people (Person 1 and Person 2) and two goods (X, moving horizontally, and Y, moving vertically). The initial endowment is at point A. Person 1's preferences are represented by the dashed indifference curve. Person 2's preferences are represented by the solid indifference curve. Figure 2: Amount of Good X Consumed by Person 2 Person 2 Amount of Good Y consumed by 1 z Aq pawnsuoa A p009 p qunomv Personl ___, Amount of Good X Consumed by Person 1 c. Are there mutually-agreeable trades that Person 1 and Person 2 could make that would leave both individuals better off than they are at point A? How do you know? What would these trades involve which person would likely give up X, and which would give up Y? (5) d. Starting from the distribution of goods at point A, can these two people reach point B through mutually agreeable trades? Explain

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