Suppose there are two consumers, A and B, and two goods, X and Y. The consumers have the following initial endowments and utility functions:

WXA=2WYA=9UA(X,Y)=X13Y23WXB=6WYB=2UB(X,Y)=3X+4Y

Suppose the price of X is PX=2 and the price of Y is PY=3. Suppose each consumer sells their initial endowment and buys back their optimal bundle.

a)(39 points) Using a clearly and accurately labeled Edgeworth Box, illustrate:

• the initial endowment, labeled "W"
• A's optimal bundle, labeled "A" and B's optimal bundle, labeled "B"
• both consumers' indifference curve through the initial allocation
• the budget constraint, the contract curve, and the core

b)(4 points) For the situation above, determine for each market if there is excess demand, excess supply, or the market is in equilibrium (write the answer). If there is excess demand or excess supply, determine how much it is.

• Market for good X:
• Market for good Y:

c) (4 points)Is the initial endowment Pareto efficient? How do you know?

d) (4 points) Can consumers benefit from trade at the current prices? Why or why not?