Bert has an initial endowment consisting of 10 units of food and 1o units of clothing. ernie’s initial endowment consists of 10 units of food and 20 units of clothing. Bert regards food and clothing as perfect 1-for-1 substitutes. Ernie regards them as perfect complements, always wanting to consume 3 units of clothing for every 2 units of food. 1. Describe the set of allocations that are Pareto preferred? 2. What price ratio will be required to sustain an allocation on the contract curve?

Bert has an initial endowment consisting of 10 units of food and 1o units of clothing. ernie’s initial endowment consists of 10 units of food and 20 units of clothing. Bert regards food and clothing as perfect 1-for-1 substitutes. Ernie regards them as perfect complements, always wanting to consume 3 units of clothing for every 2 units of food. 1. Describe the set of allocations that are Pareto preferred? 2. What price ratio will be required to sustain an allocation on the contract curve?

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 6SQ

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