Exchange - to carry out the trade Find the resulting...

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Exchange When John has 40 gallons of gas and 20 bags of sugar, his MRS of gas for sugar is 5. When Maria has 40 gallons of gas and 50 bags of sugar, her MRS of gas for sugar is 2. If John trades 6 bags of sugar for 2 gallons of gas with Maria, both their MRS’s of gas for sugar after trade become 3. a. Using the Edgeworth box diagram to show that both John and Maria would be willing
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Unformatted text preview: to carry out the trade. Find the resulting allocation. b. Is the allocation you find in part a Pareto optimal? c. Find prices for gas and sugar so as to make the above trade affordable for both John and Maria. d. Do the prices in part c and the allocation in part a form a competitive equilibrium? Why or why not? 1...
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