Q. Consider two rational behaving consumers, A and B, in a two-good exchangeeconomy. Their utility functions are defined as follows:1A2AX1/2X¹/3X1/3X2B1BTheir initial endowments are given by w₁ = (8,5) and wB = (4,3).a. Describe the initial condition that will lead to an exchange. After the exchange, howmany units of Good 2 will Individual B end up receiving/offering in the final allocation?Elaborate in detail on the steps towards the solution and round up the final answer totwo decimal places.UAUB-=b. Sketch an Edgeworth Box precisely showing the initial allocation and the finalallocation on the vertical axis. You do not have to sketch the budget constraint and theindifference curves.

For Individual A -Utility function of A : Ua = X1a1/2 X2a1/3Endowment of A : wa = 8 ,5 Therefore ,…

Q. Consider two rational behaving consumers, A and B, in a two-good exchange economy. Their utility functions are defined as follows: UA = X¹/2X1/3 2A 1A -1/3 UB= X₁ X2B 1B Their initial endowments are given by w = (8,5) and we = (4, 3).

Q. Consider two rational behaving consumers, A and B, in a two-good exchange economy. Their utility functions are defined as follows: UA = X¹/2X1/3 2A 1A -1/3 UB= X₁ X2B 1B Their initial endowments are given by w = (8,5) and we = (4, 3).

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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Question

Q. Consider two rational behaving consumers, A and B, in a two-good exchange
economy. Their utility functions are defined as follows:
1A
2A
X1/2X¹/3
X1/3
X2B
1B
Their initial endowments are given by w₁ = (8,5) and wB = (4,3).
a. Describe the initial condition that will lead to an exchange. After the exchange, how
many units of Good 2 will Individual B end up receiving/offering in the final allocation?
Elaborate in detail on the steps towards the solution and round up the final answer to
two decimal places.
UA
UB
-
=
b. Sketch an Edgeworth Box precisely showing the initial allocation and the final
allocation on the vertical axis. You do not have to sketch the budget constraint and the
indifference curves.

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