In the two good-two consumer Edgeworth Box diagram drawn below, Good X is measured horizontally, and Good Y is measured vertically. Given the initial endowment of goods at point E and the prevailing market prices, both consumer A and consumer B wish to be at point T. Which of the following statements is true? OB Good Y UB T UA Good X OA there is excess demand for Good X; excess demand for Good Y there is excess demand for Good X; excess supply for Good Y there is excess supply for Good X; excess demand for Good Y none of the above A. В. C. D.

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3. Christina loves pizza and hates burger. Her utility function is U(p – b) = p – 6", where is the number of pizzas she consumes and b is the number of burgers she consumes. John likes both pizza and burger. His utility function is U(p, b) = p + 2\b Christina has an initial endowment of no pizzas and 8 burgers. John has an initial endowment of 16 pizzas and 8 burgers. a. Graph the initial endowment and label it E b. If Christina hates burgers and John likes them, how many burgers can Christina and John be consuming at a Pareto optimal allocation? What is John's marginal utility for pizzas and burgers? Mark the locus of Pareto optimal allocations of pizzas and burgers between Christina and John on the grapsh above.

5. Sheila and Bruce are taking a canoe trip. Sheila brought 10 boxes of peanuts (x) and 15 bags of chips (y). Sheila's utility function is U*(x,y) = lnvx*+ Invy°. Bruce also brought 20 boxes of peanuts and 5 bags of chips. Bruce's utility function is UB(x.y) = min[x', y'I. a) Illustrate the endowment point and draw a sample set of indifference curves through the endowment point. b) If Sheila and Bruce trade what will be the pattern of mutually beneficial trade? c) If the terms of trade are the number of bags of chips (y) per box of peanuts (x) then what is the largest value that these terms can be for a mutually beneficial trade in this economy? d) Find one mutually beneficial trade where the terms of trade are 1 bag of chips (y) per 2 boxes of peanuts (x). Suppose that Sheila and Bruce set up two competitive markets for peanuts and chips. Below you will show that if the price of peanuts (x) is $1 and the price of chips (y) is $2 then the markets for both peanuts and chips will clear.…