Y6

Consider an economy with two individuals, Josh and Emma. There are two goods, 1: and y, the quantities of both are 4. (a) Suppose Josh and Emma have the same Cobb-Douglas preferences, described by the utility function Mac, 3;) = lnx + my. Solve for the contract curve and illustrate your solution with a graph. (b) Suppose Josh and Emma have xed initial endowments of 3; and 3; (0,4) for Josh and (4,0) for Emma, so the total endowment is (4,4). What is the price ratio in the competitive equilibrium