Question
Using an Edgeworth box, draw the following scenario. For breakfast, Eloise and Brighton, who are sisters, are each given 3 pancakes and 5 orange slices.
Using an Edgeworth box, draw the following scenario. For breakfast, Eloise and Brighton, who are sisters, are each given 3 pancakes and 5 orange slices. Assume that they then engage in a series of trades and in the end settle on the following deal: Brighton gives Eloise 1 pancake in exchange for 2 orange slices. Make sure to indicate on your graph: i. all of the axes, ii. indifference curves at the initial endowment (assume usual, well-behaved, convex indifference curves), iii. and indifference curves at the final bundle that emerged as an equilibrium through trade.
a. Was the initial endowment Pareto efficient? Is the equilibrium bundle Pareto efficient? Justify your answers. b. Suppose that their older brother came in and took all of the food from Brighton and gave it to Eloise. Do we know whether this redistribution is Pareto efficient?
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