Suppose that we have a simple two-person exchange economy with two goods: sunglasses and capes. At the

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Suppose that we have a simple two-person exchange economy with two goods: sunglasses and capes. At the present allocation of goods in the economy Clark is willing to exchange three pair of sunglasses for a cape while Lois is willing to exchange just one pair of sunglasses for a cape.
a. What is wrong with the current allocation of goods in this economy?
b. How should goods be reallocated in order to move to a more efficient allocation?
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Public Finance

ISBN: 978-1111526986

2nd edition

Authors: John E. Anderson

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