Aaron and Burris have the following utility functions over two goods, x and y. Aaron’s utility function: UA(xA, yA) = min{xA/3, yA} Burris’s utility function: UB(xB, yB) = 9xB + 3yB Aaron’s endowment is eA = (2, 4). Burris’ endowment is eB = (10, 8). In an Edgeworth Box diagram, show which allocations are in the core. Solve for the set of Pareto optimal allocations (i.e. the contract curve) in the Edgeworth Box. Illustrate the contract curve in an Edgeworth Box diagram. Let good y be the numeraire (i.e. set py = 1 and let px = p). Solve for the Walrasian competitive equilibrium allocation and price ratio.

Aaron and Burris have the following utility functions over two goods, x and y. Aaron’s utility function: UA(xA, yA) = min{xA/3, yA} Burris’s utility function: UB(xB, yB) = 9xB + 3yB Aaron’s endowment is eA = (2, 4). Burris’ endowment is eB = (10, 8). In an Edgeworth Box diagram, show which allocations are in the core. Solve for the set of Pareto optimal allocations (i.e. the contract curve) in the Edgeworth Box. Illustrate the contract curve in an Edgeworth Box diagram. Let good y be the numeraire (i.e. set py = 1 and let px = p). Solve for the Walrasian competitive equilibrium allocation and price ratio.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter21: Demand: Consumer Choic

Section: Chapter Questions

Problem 16E

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