HW_06_Solutions

HW_06_Solutions - HW 6 - suggested solutions February 12,...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: HW 6 - suggested solutions February 12, 2010 Question 1 In figure 1 we see the two indifference curves through the endowment point. Question 2 In figure 2 we see the two indifference curves through the endowment point. All bundles to the northeast of IC 1 are preferred by agent 1. All bundles to the southwest of IC 2 are preferred by agent 2. All bundles between the indifference curves are preferred by both and hence allow mutual gains from trade. Question 3 In figure 3 we see the set of efficient allocations (red line). In particular it is the set of bundles for which MRS 1 = MRS 2 , or x 1 y 2 = 2 y 2 x 2 y 2 2 = 2 x 2 y 2 = 2 10- x 1 10- y 1 . We can solve this for y 1 to get y 1 = 10 x 1 20- x 1 and hence the set of efficient allocations is [( x , y ) , ( 10- x , 10- y )] : y = 10 x 20- x , x [ 0, 10 ] . The set of efficient allocations that make each consumer better off relative to his/her endowment is the piece of the red line between the indifference curves, or [( x , y ) , (...
View Full Document

This note was uploaded on 04/01/2010 for the course ECON 180052110 taught by Professor Mcdevitt during the Winter '09 term at UCLA.

Page1 / 6

HW_06_Solutions - HW 6 - suggested solutions February 12,...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online