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Question 4 Consider a simple economy with two individuals, John and Marsha. The economy is endowed with 30 kilograms of cheese and 3D loaves of
Question 4 Consider a simple economy with two individuals, John and Marsha. The economy is endowed with 30 kilograms of cheese and 3D loaves of bread each month. John and Marsha's preferences for bread and cheese are given by their marginal rate of substitution of bread for cheese: Marsha: John" 5 ' 1o Mast: = MRSL = xt' Xi 1rWhere X51 is the quantity of bread consumed by Marsha and XL is the quantity of bread consumed by John. a) If each individual only had one loaf of bread, how much cheese would each individual be willing to give up in order to have another loaf of bread\"?' b) In the initial allocation, each individual has 15 kilograms of cheese and 15 loaves of bread. Draw the Edgeworth Box diagram for this economy and explain Whether the initial allocation of cheese and bread is Pareto efcient. c) Draw the contract curve for this economy
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