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Using an Edgeworth Box diagram, with bacon on the horizontal axis, and eggs on the vertical axis, show how a set of prices can result
Using an Edgeworth Box diagram, with bacon on the horizontal axis, and eggs on the vertical axis, show how a set of prices can result in there being an excess supply of bacon and an excess demand for eggs, and explain why this is not a competitive equilibrium. Remember to label everything in the diagram. What will have to happen to egg and bacon prices for there to be a competitive equilibrium? Is a competitive equilibrium also Pareto efficient? How do you know?
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