Hi. Please help me with the 3 questions attached. Consider an exchange economy with two consumers, Jack and Blue, who trade only twogoods: Cookies and Hats. Quantities of Cookies are measured vertically, and quantities ofHats are measured horizontally. Lacks origin should be placed at the bottom left.CookiesJackHats10₂10₂IC₂BluesсHatsCookThe first curve, labelled IC, represents a lower level of utility, while the third curve,labelled IC₁, represents a higher level of utility.The first curve, labelled ICBI, represents a lower level of utility, while the third curve,labelled ICB3, represents a higher level of utility.Question 1:Using a new box diagram like the one above for Jack and Blue, mark a possible initialendowment point and, with the help of a budget constraint line and indifference curves, showan excess demand for Hats at a given price and explain the economic significance of excessdemand. Label your diagram in full.Question 2:Reproduce the diagram you used above and explain what must happen to the price of Hatsrelative to the price of cookies for equilibrium to be established, eliminating the excessdemand for Hats. Show this on your diagram and explain the adjustment process andequilibrium outcome in full.Question 3:Discuss in full the implications for efficiency and fairness of the First Welfare Theorem andthe Second Welfare Theorem

The First Welfare theorem states that in an exchange economy with consumers with locally…

Consider an exchange economy with two consumers, Jack and Blue, who trade only two goods: Cookies and Hats. Quantities of Cookies are measured vertically, and quantities of Hats are measured horizontally. Jacks origin should be placed at the bottom left. Hats Cookies IC IC₂ Blues с

Consider an exchange economy with two consumers, Jack and Blue, who trade only two goods: Cookies and Hats. Quantities of Cookies are measured vertically, and quantities of Hats are measured horizontally. Jacks origin should be placed at the bottom left. Hats Cookies IC IC₂ Blues с

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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