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Unformatted text preview: B s origin is in the upper-right corner of the Edgeworth Box). Solving the problem for each pair of utility functions and endowment is easy to do, just follow these steps: Step 1: First you draw the Edgeworth Box. Make sure the box has the correct dimensions, so that the q 1 axis has length e A 1 + e B 1 and the q 2 axis has length e A 2 + e B 2 . Step 2: Next you nd the endowment in the box. The point labeled e should reect the endowments e A = ( e A 1 ,e A 2 ) and e B = ( e B 1 ,e B 2 ) of A and B , respectively. Step 3: Then you draw the indierence curves in the box. Again, their slopes will be equal to the MRS of each consumer. We are particularly interested in the indierence curves through the endowment, so we must evaluate the MRS at the endowment. If MRS A 6 = MRS B at e , then there is scope for mutually benecial trades. And thats the way you do it! Remember, every type of preference has indierence curves in the box. 1...
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This note was uploaded on 12/10/2011 for the course ECON 401 taught by Professor Burbidge,john during the Winter '08 term at Waterloo.
- Winter '08