ps6v2q - PROBLEM SET 6 VERSION 2 Economics 201 Geoffrey...

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Unformatted text preview: PROBLEM SET 6 VERSION 2 Economics 201 Geoffrey Jehle Present all final answers neatly on these pages—please do your scratch work somewhere else. Remember to attribute help received. 1. This problem (though tedious) gives valuable practice using The Edgeworth Box. Below, traders I and II have usual convex indifference curves over goods X and Y . Trader I’s origin is in the southwest, II’s origin is in the northeast. In all, there are 200 units of X and 180 units of Y . 20 40 60 80 100 120 140 160 180 200 20 40 60 80 100 120 140 160 180 X Y O I O II Figure 1: a. Starting at II’s origin, mark off units of X and Y consumed by II in 20-unit increments on II’s axes. 2 b. Plot the following alternative distributions of X and Y between I and II and label the points A, B, etc. Fill in the blanks. (A) I has 25 X , II has X I has 75 Y , II has Y (B) I has 100 X , II has X I has 60 Y , II has Y (C) I has X , II has 135 X I has Y , II has 120 Y (D) I has X , II has 100 X I has Y , II has 100 Y (E) I has 170 X , II has X I has 110 Y , II has Y (F) I has 145 X , II has X I has 65 Y , II has Y c. Rank the allocations A—F in order of preference to trader I. If, for example, I prefers A to B and B to C, write A (P) B (P) C, etc. Rank the allocations A—F in order of preference to trader II. d. Suppose the traders begin with the following endowments: I has 40 X and 150 Y II has 160 X and 30 Y Mark this endowment point as G. e. Starting with the endowments G, to which of the alternative allocations A—F would trader I be willing to trade? To which of A—F would II be willing to trade? To which of A—F would both I and II be willing to trade? f. Carefully delineate the entire set of allocations to which both traders would be willing to trade from endowment G by sketching over IN RED the two traders’ indifference curves which bound this region. 3 g. What is the most preferred distribution of X and Y within this trading region from I’s point of view (approximate if necessary)? Mark this point H. At point H, I has X , Y II has X , Y The most preferred from II’s point of view? Mark it J. At point J, I has X , Y II has X , Y h. Sketch the “Contract Curve” for these two traders. The segment of the Contract Curve that constitutes the “core” of the exchange possibilities between I and II, given the...
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This note was uploaded on 04/26/2010 for the course ECON 101 taught by Professor Staff during the Spring '08 term at Vassar.

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ps6v2q - PROBLEM SET 6 VERSION 2 Economics 201 Geoffrey...

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