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Suppose that there are two individuals, Alfred and Betina, who consume two goods, X and Y. Alfred initially has 10 units of good X and
Suppose that there are two individuals, Alfred and Betina, who consume two goods, X and Y. Alfred initially has 10 units of good X and 5 units of good Y, while Betina has 5 units of good X and 10 units of good Y. Alfred's preferences can be summarized by the utility function U = xy2 , and Betina's by U = x2y
(a) Draw an Edgeworth box that represents the initial allocation.
(b) Is the initial allocation Pareto optimal? Why or why not?
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