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Q2 Exchange Economies II Matilda and Pierre consume wine and books. Matilda has 30 books and 10 bottles of wine. Philip has 10 books and
Q2 Exchange Economies II Matilda and Pierre consume wine and books. Matilda has 30 books and 10 bottles of wine. Philip has 10 books and 20 bottles of wine. Matilda's utility is u( ) = bw while Philips utility is u( ) = b + w. a) Give an example of an allocation that is in the Pareto set (defined by or relative to the initial endowment). Be sure to show that both consumers obtain greater utility at the suggested allocation. b) Assuming the Walrasian Auctioneer sets the price of both books and wine at p = 1, calculate the optimal allocation of books and wine for each consumer. c) Is the allocation in (c) an equilibrium? Explain your
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