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Question 2 [20 marks] Two individuals, Ann (A) and Bruce (B), populate an exchange economy. They have the same preferences over two goods, eggs (x)

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Question 2 [20 marks] Two individuals, Ann (A) and Bruce (B), populate an exchange economy. They have the same preferences over two goods, eggs (x) and bacon (y), and so we have the following utility function representations for each: uA(xA,yA)=(xA)21(yA)21 and uB(xB,yB)=(xB)21(yB)21. Their initial endowments of both goods are respectively xA=5, yA=0, and xB=0 and yB=20. a) [10 marks] Find an equation for the Pareto set, explaining your reasoning as you do so. Given the above preferences and endowments, are there potential gains from trade in this economy? Why or why not? Explain your reasoning. b) [10 marks] Choosing good y as the numraire, find the Walrasian equilibrium (i.e., the market-clearing prices and the corresponding allocation) for this economy, explaining your reasoning as you do so

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