Suppose there are two kids in an endowment economy (i.e. their parents are the ones who give them stuff), Ann and Jan, with utility functions:

UJ = sJ tJ

UA = 2 sA + 2 tA

where s is the number of stickers and t is the number of toys. Suppose Anns parents give her esA = 16 stickers and etA = 12 toys, while Jans parents give her esJ = 2 stickers and etJ = 18 toys.

* (a) Provide a rough sketch of the edgeworth box, be sure to include the endowment and a rough approximiation of the utility functions.

* (b) What is the contract curve here (note: be careful, there is a discontinuity here)? Add it to your sketch and be sure to label it.

* (c)Given their inital endowments, what would the outcome be if the girls were allowed to trade in a competitive market equilibrium (hint: do not over think this, if you find a simple solution, you are likely to be correct. Also, make sure to indicate both prices and the quantities.).

* (d)Suppose their teacher felt it would be better if each person was given the exact same (i.e. sA = sJ = 9 and tA = tJ = 15). Explain why the girls would never remain at this outcome if allowed to trade.

* (e)WhatdoesitmeanforanoutcometobeParetoefficient?Whydoeconomists focus so much on the idea of Pareto efficiency (explain in your own words and if using someone elses words, remember to give citation/attribution)?