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
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![2. Consider an economy with two agents and two commodities. Consumers' preferences
are represented by the following utility functions
u₁(x,x) = (x²) ¹ (x²) ½
u₂(x², x²) = x² + x².
Consumers' initial endowments are
e² = (6,4).
Note: You can normalize the price of one good to 1 at any point when solving this
question.
e¹ = (10,2)
(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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F675baeb6-e327-4788-a127-a838e49dadb4%2F47212fb0-e84e-45a1-8ca5-a2df2ec4e3a7%2F71iyus_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2. Consider an economy with two agents and two commodities. Consumers' preferences
are represented by the following utility functions
u₁(x,x) = (x²) ¹ (x²) ½
u₂(x², x²) = x² + x².
Consumers' initial endowments are
e² = (6,4).
Note: You can normalize the price of one good to 1 at any point when solving this
question.
e¹ = (10,2)
(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.
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