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Question 5: A Simple Endowment Economy Suppose that there are two agents in an eco nomy: Crusoe and Friday. There are two goods, bread and
Question 5: A Simple Endowment Economy Suppose that there are two agents in an eco nomy: Crusoe and Friday. There are two goods, bread and rum. Crusoe has one dram of rum, while Friday has one loaf of bread. Further suppose that rum is :31 and bread is 332. Both Crusoe and Friday have the same pre ferences for the two goods: I a U(:a:1, 3:2) = 23113:; 1. In competitive equilibrium, what's the exchange rate of rum for bread? In other words, what's the relative price vector? 2. In equilibrium, how much bread and rum does each agent have? Is this a Pareto Optimal allocation? 3. Please draw the Edgeworth box for this economy. Be sure to include the endowment point, the equilibrium allocation, the price vector, and some indifference curves
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