An economy has two types of people. The utility function of Type 1 is U(x, y) = x+ y, and that of Type 2 is U(x, y)= Min (2x, y). Type 1 initially has 8 units of good X only (no good Y), and Type 2 has 2 units of good X and 10 units of good Y. a) Show this economy in an Edgeworth box, and draw the contract curve (i.e the set of Pareto efficient allocations). b) Find the competitive equilibrium prices and consumptions for each type of person. c) Is the competitive equilibrium allocation you found in b) Pareto efficient? Why or why not?
An economy has two types of people. The utility function of Type 1 is U(x, y) = x+ y, and that of Type 2 is U(x, y)= Min (2x, y). Type 1 initially has 8 units of good X only (no good Y), and Type 2 has 2 units of good X and 10 units of good Y. a) Show this economy in an Edgeworth box, and draw the contract curve (i.e the set of Pareto efficient allocations). b) Find the competitive equilibrium prices and consumptions for each type of person. c) Is the competitive equilibrium allocation you found in b) Pareto efficient? Why or why not?
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter6: Consumer Choice Theory
Section: Chapter Questions
Problem 14SQ
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![An economy has two types of people. The utility function of Type 1 is U(x, y) = x +
y, and that of Type 2 is U(x, y) = Min {2x, y}. Type 1 initially has 8 units of good X only (no
good Y), and Type 2 has 2 units of good X and 10 units of good Y.
a) Show this economy in an Edgeworth box, and draw the contract curve (i.e the set of Pareto
efficient allocations).
b) Find the competitive equilibrium prices and consumptions for each type of person.
c) Is the competitive equilibrium allocation you found in b) Pareto efficient? Why or why
not?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5b941451-3fee-467a-8b37-49146b1db54d%2F8ac3b308-5c82-4ef8-b3da-4383719aad7c%2Fnqe64qb_processed.png&w=3840&q=75)
Transcribed Image Text:An economy has two types of people. The utility function of Type 1 is U(x, y) = x +
y, and that of Type 2 is U(x, y) = Min {2x, y}. Type 1 initially has 8 units of good X only (no
good Y), and Type 2 has 2 units of good X and 10 units of good Y.
a) Show this economy in an Edgeworth box, and draw the contract curve (i.e the set of Pareto
efficient allocations).
b) Find the competitive equilibrium prices and consumptions for each type of person.
c) Is the competitive equilibrium allocation you found in b) Pareto efficient? Why or why
not?
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