The Foundations of Behavioral Economic Analysis Consider the following property of choice correspondence : Show that maximization of complete and transitive preference satisfies β-axiom.

(a) Examine the view that it is possible to escape from the "impossibility" result of Arrow by making social preferences a function of cardinal utility rather than of individual orderings.

Linguini and Colette consume only éclair (x,) and profiterole (x2). Linguini has utility function U4 = xfxf and Colette has utility function UB = 2xfx% . Linguini is endowed with 10 éclair (x,) and 3 profiterole (x,), while Colette is endowed with 20 éclair (x,) and 9 profiterole (x,). Draw an Edgeworth box with x, on the horizontal axis and x2 on the vertical axis. Position Linguini on the bottom left corner and Colette on the top right corner. Indicate the total number of units of x, and x2. Label the endowment allocation. Derive the equation of the contract curve, i.e., find x(x). In your graph in (a), draw the contract curve. Suppose the price of éclair (x,) is $1 and the price of profiterole (x2) is $2. Find each consumer's utility-maximizing basket. How much of each good does each consumer want to buy or sell? Are the markets in equilibrium at the given prices? Verify that Walras' law holds at these prices. Now we will solve for the competitive equilibrium. Use your solution to…

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