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Quiz 10 Exchange

# Quiz 10 Exchange - Shomu Banerjee ECON 201 ya xb EXCHANGE...

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Shomu Banerjee ECON 201 EXCHANGE O b O a x a y a x b y b Good x is bars of chocolate (assumed to be divisible) and good y is hours spent on computer games. Adam (person 1) has 4 bars of chocolate but doesn’t have a computer; Billy (person 2) is allowed by his parents to spend 5 hours on the computer but has no chocolate. Their utility functions are u a ( x a , y a ) = x a + 2 y a and u b ( x b , y b ) = x b + y b with marginal utilities for Adam being MU x a = 1 and MU y a = 1 y a and for Billy being MU x b = 1 and MU y b = 1 2 b . (a) Find the points of the contract curve that lie within the Edgeworth box.

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(b) Adam and Billy decide to trade hours on the computer for chocolate. Assume
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Quiz 10 Exchange - Shomu Banerjee ECON 201 ya xb EXCHANGE...

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