ps9x313_f08 - Econ 3130 Fall 2008 PS#9-XtraQ DUE: Monday,...

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Econ 3130 – Fall 2008 PS#9-XtraQ DUE: Monday, November 24 1. Suppose Abe and Betty are the only two people in a pure exchange economy. Food and clothing are the only two commodities. Abe and Betty are each initially endowed with 15 units of clothing and 15 units of food. Food and clothing are perfect substitutes for Betty, i.e., u B = F + C . Food and clothing are perfect complements for Abe, i.e., u A = min{F, 2C} . a. PUTTING FOOD ON THE VERTICAL AND CLOTHING ON THE HORIZONTAL, draw an indifference curve map for Abe and include at least 3 indifference curves for Abe in the diagram. Do the same for Betty. b. PUTTING FOOD ON THE VERTICAL AND CLOTHING ON THE HORIZONTAL, in an appropriately dimensioned Edgeworth/Bowley box diagram, illustrate the initial endowment allocation for this economy along with initial indifference curves for Abe and Betty. Is the initial endowment allocation Pareto efficient? Why or why not? If not, what allocations Pareto dominate the endowment allocation?
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This note was uploaded on 02/18/2009 for the course ECON 3130 taught by Professor Masson during the Fall '06 term at Cornell University (Engineering School).

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