1. Suppose that there is a pure exchange economy described by:

• Two commodities: automobiles (a) and boats (b)
• Two people: Mel (M) and Norm (N)
• Endowment = (a(m) , b(m), a(n), b(n) = (7, 8, 1 , 14)
  1. Draw the Edgeworth box that represents this economy.
  2. Suppose the Endowment is not Pareto optimal. Using indifference curves show the region in which feasible allocations offer a Pareto improvement over the endowment.
  3. Show the region in which feasible allocations offer a reduction in satisfaction for both individuals.
  4. What allocation would be perfectly equitable and explain whether this would be a good social outcome?