An exchange economy consists of two individuals and two goods. The two individuals have the following Leontief utility functions:Person 1: U1(x1, y1) = 3x1 + y1 Person 2: U2(x2, y2) = x2 + 2y2Person 1 has an endowment of e1 = (3, 2). Person 2’s endowment is e1 = (3, 4).In an Edgeworth Box diagram, show which allocations are in the core.Describe 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). What price ratio(s) P* will support a competitive equilibrium allocation for this economy?

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Chapter1: Making Economics Decisions

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An exchange economy consists of two individuals and two goods. The two individuals have the following Leontief utility functions:

Person 1: U1(x1, y1) = 3x1 + y1 Person 2: U2(x2, y2) = x2 + 2y2

Person 1 has an endowment of e1 = (3, 2). Person 2’s endowment is e1 = (3, 4).

In an Edgeworth Box diagram, show which allocations are in the core.
Describe 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). What price ratio(s) P* will support a competitive equilibrium allocation for this economy?

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