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Quiz 11 Exchange2

Quiz 11 Exchange2 - Edgeworth box(b Andrea and Beverly...

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Shomu Banerjee ECON 201 EXCHANGE #2 x a x b y b O b O a y a 10 20 30 40 50 10 20 In the Edgeworth box above, Andrea‘s origin is O a while Beverly’s is O b . Andrea’s endowment is (10, 20) and Beverly’s is (50, 10). They have identical utility functions u ( x , y ) = xy 2 with marginal utilities MU x = y 2 and MU y = 2 xy . Denote each person’s consumption bundle by ( x a , y a ) and ( x b , y b ) where x a + x b = 60 and y a + y b = 30. (a) Calculate and draw the points of the contract curve that lie within the

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Unformatted text preview: Edgeworth box. (b) Andrea and Beverly decide to trade. Assume that the price of good x is p x = 1. The demand for x and y by either person is x = m 3 p x and y = 2 m 3 p y where m represents either m a or m b (the incomes of Andrea or Beverly). Find the Walras equilibrium for this economy (i.e., the price of p y , as well as the allocation that Andrea and Beverly end up consuming after trade)....
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Quiz 11 Exchange2 - Edgeworth box(b Andrea and Beverly...

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