Question 3 Mr. Richie was a wealthy business man. He had two children, Janet nd Jackson. Richie has gold necklaces and diamond rings. In this economy, Mr. Richie was the nly consumer who had gold necklaces and diamond rings. Mr. Richie did not write any will. When e died, half of his gold necklaces were inherited by Janet, and the other half by Jackson. Similarly, alf of his diamond rings were inherited by Janet and the other half by Jackson. Janet and Jackson id not have any other assets and did not receive anything else from Mr. Richie. (a) Draw an Edgeworth Box with two consumers, Janet (lower left) and Jackson (upper right), and two goods, gold necklaces (horizontal axis) and diamond rings (vertical axis). Locate the endowment bundles in the Edgeworth Box, after Janet and Jackson receive their father's assets. (b) Suppose a gold necklace is more expensive than a diamond ring. Draw a new Edgeworth Box showing Janet's and Jackson's budget sets. (c) Suppose that Janet only cares about diamond rings, Jackson only cares about gold necklaces and Janet and Jackson can trade among themselves. (i) Draw a new Edgeworth Box showing: (1) two of Janet's indifference curves including an arrow pointing towards the direction of higher utility, and (II) two of Jackson's indifference curves including an arrow pointing towards the direction of higher utility (use a different colour). (ii) Is there any competitive equilibrium in which gold necklaces and diamond rings have the same price? Explain and illustrate your answer. If your answer is yes, identify Janet's and Jackson's competitive allocations. (iii) Is there any competitive equilibrium in which gold necklaces are more expensive than diamond rings? Explain and illustrate your answer. If your answer is yes, identify Janet's and Jackson's competitive allocations. Draw a new Edgeworth Box showing the set of Pareto Optimal allocation(s). (d)
Question 3 Mr. Richie was a wealthy business man. He had two children, Janet nd Jackson. Richie has gold necklaces and diamond rings. In this economy, Mr. Richie was the nly consumer who had gold necklaces and diamond rings. Mr. Richie did not write any will. When e died, half of his gold necklaces were inherited by Janet, and the other half by Jackson. Similarly, alf of his diamond rings were inherited by Janet and the other half by Jackson. Janet and Jackson id not have any other assets and did not receive anything else from Mr. Richie. (a) Draw an Edgeworth Box with two consumers, Janet (lower left) and Jackson (upper right), and two goods, gold necklaces (horizontal axis) and diamond rings (vertical axis). Locate the endowment bundles in the Edgeworth Box, after Janet and Jackson receive their father's assets. (b) Suppose a gold necklace is more expensive than a diamond ring. Draw a new Edgeworth Box showing Janet's and Jackson's budget sets. (c) Suppose that Janet only cares about diamond rings, Jackson only cares about gold necklaces and Janet and Jackson can trade among themselves. (i) Draw a new Edgeworth Box showing: (1) two of Janet's indifference curves including an arrow pointing towards the direction of higher utility, and (II) two of Jackson's indifference curves including an arrow pointing towards the direction of higher utility (use a different colour). (ii) Is there any competitive equilibrium in which gold necklaces and diamond rings have the same price? Explain and illustrate your answer. If your answer is yes, identify Janet's and Jackson's competitive allocations. (iii) Is there any competitive equilibrium in which gold necklaces are more expensive than diamond rings? Explain and illustrate your answer. If your answer is yes, identify Janet's and Jackson's competitive allocations. Draw a new Edgeworth Box showing the set of Pareto Optimal allocation(s). (d)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
include graphs/diagrams accordingly
Transcribed Image Text:Question 3
Mr. Richie was a wealthy business man. He had two children, Janet
and Jackson. Richie has gold necklaces and diamond rings. In this economy, Mr. Richie was the
only consumer who had gold necklaces and diamond rings. Mr. Richie did not write any will. When
he died, half of his gold necklaces were inherited by Janet, and the other half by Jackson. Similarly,
half of his diamond rings were inherited by Janet and the other half by Jackson. Janet and Jackson
did not have any other assets and did not receive anything else from Mr. Richie.
(a)
Draw an Edgeworth Box with two consumers, Janet (lower left) and Jackson
(upper right), and two goods, gold necklaces (horizontal axis) and diamond rings (vertical
axis). Locate the endowment bundles in the Edgeworth Box, after Janet and Jackson receive
their father's assets.
(b)
Suppose a gold necklace is more expensive than a diamond ring. Draw a new
Edgeworth Box showing Janet's and Jackson's budget sets.
(c) Suppose that Janet only cares about diamond rings, Jackson only cares about gold necklaces
and Janet and Jackson can trade among themselves.
(i)
Draw a new Edgeworth Box showing: (1) two of Janet's indifference curves
including an arrow pointing towards the direction of higher utility, and (II) two of
Jackson's indifference curves including an arrow pointing towards the direction of higher
utility (use a different colour).
(d)
(ii)
Is there any competitive equilibrium in which gold necklaces and diamond
rings have the same price? Explain and illustrate your answer. If your answer is yes,
identify Janet's and Jackson's competitive allocations.
(iii)
Is there any competitive equilibrium in which gold necklaces are more expensive
than diamond rings? Explain and illustrate your answer. If your answer is yes, identify
Janet's and Jackson's competitive allocations.
Draw a new Edgeworth Box showing the set of Pareto Optimal allocation(s).
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 7 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education