Consider an economy with two agents and two commodities. Consumers' preferences are represented by the following utility functions u₁(x¹, x² ) = (x²) ¹ (x¹² ) ² u₂(x,x) = x² + x². Consumers' initial endowments are e¹ = (10,2) Note: You can normalize the price of one good to 1 at any point when solving this question. e² = (6,4). (a) Draw the Edgeworth box that represents this economy. Clearly indicate the size of the box (i.e. the maximal feasible amounts of good 1 and good 2). Show the location of the initial endowment and draw the indifference curve of each consumer that passes through the initial endowment.
Consider an economy with two agents and two commodities. Consumers' preferences are represented by the following utility functions u₁(x¹, x² ) = (x²) ¹ (x¹² ) ² u₂(x,x) = x² + x². Consumers' initial endowments are e¹ = (10,2) Note: You can normalize the price of one good to 1 at any point when solving this question. e² = (6,4). (a) Draw the Edgeworth box that represents this economy. Clearly indicate the size of the box (i.e. the maximal feasible amounts of good 1 and good 2). Show the location of the initial endowment and draw the indifference curve of each consumer that passes through the initial endowment.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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