Question 1 Consider a pure exchange economy with two consumption goods, X and Y, and two consumers, A and 8. There are 20 units of X and 20 units of Y in the economy. The preferences of the consumers are represented by the following utility functions: U\" (XAYA ) = X4 + ZYA U3 (X575 ) =3iX3i2 Ya a. Suppose that initially consumer A has 10 units of X and 10 units of Y, while consumer B has all the remaining units of the two goods. is this allocation Pareto efcient? [7 marks] b. Sketch the indifference curves and the initial allocation on an appropriate diagram. in your diagram identify the area where there is scope for a Pareto improvement and explain why this is the case. [8 marks] c. Now suppose initially A has all the available units of X and B has all the units of good Y. The price ofX is 1 and the price of good Y is 1 as well. Write down expressions for the budget constraints for A and B. How muoh X and V will he demanded at these prices? Do these prices and quantities form a general competitive equilibrium? [10 marks] [25 Marks]