In class problem solving 2 AK

In class problem solving 2 AK - ΔF A = 1 ΔC A =-3 This...

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In class problem solving 2: Answer key Andrew’s MRS food, clothing = 3 and Becky’s MRS food, clothing = 2 1. Who likes clothing better? Becky likes clothing better (and James likes food better) 2. Is there a trade that will make both agents better off? If so, propose the terms of such trade by indicating how many units of each good each will exchange. Yes, there is (I was not asking for the impossible). What I wrote on the blackboard was the following: ΔF A = +1 ΔC A = -2 This trade will leave Andrew better off because he was willing to give up 3 units (and he is only giving up 2). ΔF B = -1 ΔC B = +2 Becky, on the other hand, is getting the minimum she was asking for (2 units of C). Therefore, in this trade Andrew is better off and Becky is as well off as before. So, the after trade is a Pareto preferred allocation. Another trade that you guys mentioned is the following:
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Unformatted text preview: ΔF A = +1 ΔC A = -3 This trade will leave Andrew as well off because he is giving up 3 units (the maximum he was willing to). ΔF B = -1 ΔC B = +3 Becky, on the other hand, is getting more than what she was asking for (she asked for a minimum of 2 and she is getting 3) Therefore, in this trade Becky is better off and Andrew is as well off as before. So, the after trade is a Pareto preferred allocation. The trades that will leave both agents better off are the following: ΔF A = +1 -3 < ΔC A < -2 ΔF B = -1 +2 < ΔC B <+ 3 Note the strictly greater and strictly less than signs. What this is saying is that any trade in which Andrew gives up anything in between 2 and 3 units of clothing (ie: anything more than 2 but less than 3) to Becky, will make both of them better off....
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