Question 2:

1. Consider an exchange economy with two goods, good 1 and good 2, and two consumers, A (Ana) and B (Bob). Anas preferences are represented by the Cobb-Douglas utility function uA(a:'14,a:') = (50'1\"?th and her endowment is wA = (ww') = (8,2). Bobs preferences are represented by the Cobb-Douglas utility function u3(:1213, 59'?) = (313)2(m)1 and his endowment is mg =(w15,w3)=(2,8). (i) Draw an Edgeworth box describing this economy. Mark the endowment point. Show in your Edgeworth box the set of feasible allocations that Pareto dominate the initial endowment (these are the feasible allocations that can be reached through voluntary trade). (ii) Derive the set of all feasible Pareto e'icient points, and plot it in the same Edgeworth box. Denote which points represent the contract curve. goods. 2. Repeat question 1 for the same endowments, but with preferences now represented by the following utility functions: to. ($14,331) = 2&8?) + 4(33") n3(ar'13,m)=(ml)(x23) (i) Draw an Edgeworth box describing this economy. Mark the endowment point. Show in your Edgeworth box the set of feasible allocations that Pareto dominate the initial endowment (these are the feasible allocations that can be reached through voluntary trade). (ii) Derive the set of all feasible Pareto efcient points, and plot it in the same Edgeworth box. Denote which points represent the contract curve. (iii) Compute the competitive equilibrium prices and the associated allocation of the two goods