8. Consider a two-person economy which consists of Ann and Bob. Both of them onlyconsume goods and y. Ann utility over these two goods is:Tu(xA, YA)and Bob's utility isu(TB, YB)wwwmmTAYA2IBYB3Initially, Ann is endowed with 9 units of z and zero units of y; Bob is endowed with6 units of y and zero units of z.(a) Write Ann's marginal rate of substitution in terms of TA and yA and Bob'smarginal rate of substitution in terms of ï and YB.(b) Derive the equation for the contract curve.

Contract Curve: The contract curve shows the allocation of two goods among the two individuals,…

Consider a two-person ay consume goods and y. Ann utility over these two goods is: u(TA, YA) and Bob's utility is TAYA 2 BOD. bb. Both of them only IBYB 3 u(TB, YB) = Initially, Ann is endowed with 9 units of r and zero units of y; Bob is endowed with 6 units of y and zero units of r. (a) Write Ann's marginal rate of substitution in terms of TA and yA and Bob's marginal rate of substitution in terms of and YB. (b) Derive the equation for the contract curve.

Consider a two-person ay consume goods and y. Ann utility over these two goods is: u(TA, YA) and Bob's utility is TAYA 2 BOD. bb. Both of them only IBYB 3 u(TB, YB) = Initially, Ann is endowed with 9 units of r and zero units of y; Bob is endowed with 6 units of y and zero units of r. (a) Write Ann's marginal rate of substitution in terms of TA and yA and Bob's marginal rate of substitution in terms of and YB. (b) Derive the equation for the contract curve.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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