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Question 3 Mr. Richie was a wealthy business man. He had two children, Janet nd Jackson. Richie has gold necklaces and diamond rings. In this economy, Mr. Richie was the nly consumer who had gold necklaces and diamond rings. Mr. Richie did not write any will. When e died, half of his gold necklaces were inherited by Janet, and the other half by Jackson. Similarly, alf of his diamond rings were inherited by Janet and the other half by Jackson. Janet and Jackson id not have any other assets and did not receive anything else from Mr. Richie. (a) Draw an Edgeworth Box with two consumers, Janet (lower left) and Jackson (upper right), and two goods, gold necklaces (horizontal axis) and diamond rings (vertical axis). Locate the endowment bundles in the Edgeworth Box, after Janet and Jackson receive their father's assets. (b) Suppose a gold necklace is more expensive than a diamond ring. Draw a new Edgeworth Box showing Janet's and Jackson's budget sets. (c) Suppose that Janet only cares about diamond rings, Jackson only cares about gold necklaces and Janet and Jackson can trade among themselves. (i) Draw a new Edgeworth Box showing: (1) two of Janet's indifference curves including an arrow pointing towards the direction of higher utility, and (II) two of Jackson's indifference curves including an arrow pointing towards the direction of higher utility (use a different colour). (ii) Is there any competitive equilibrium in which gold necklaces and diamond rings have the same price? Explain and illustrate your answer. If your answer is yes, identify Janet's and Jackson's competitive allocations. (iii) Is there any competitive equilibrium in which gold necklaces are more expensive than diamond rings? Explain and illustrate your answer. If your answer is yes, identify Janet's and Jackson's competitive allocations. Draw a new Edgeworth Box showing the set of Pareto Optimal allocation(s). (d)

Question 3 Mr. Richie was a wealthy business man. He had two children, Janet nd Jackson. Richie has gold necklaces and diamond rings. In this economy, Mr. Richie was the nly consumer who had gold necklaces and diamond rings. Mr. Richie did not write any will. When e died, half of his gold necklaces were inherited by Janet, and the other half by Jackson. Similarly, alf of his diamond rings were inherited by Janet and the other half by Jackson. Janet and Jackson id not have any other assets and did not receive anything else from Mr. Richie. (a) Draw an Edgeworth Box with two consumers, Janet (lower left) and Jackson (upper right), and two goods, gold necklaces (horizontal axis) and diamond rings (vertical axis). Locate the endowment bundles in the Edgeworth Box, after Janet and Jackson receive their father's assets. (b) Suppose a gold necklace is more expensive than a diamond ring. Draw a new Edgeworth Box showing Janet's and Jackson's budget sets. (c) Suppose that Janet only cares about diamond rings, Jackson only cares about gold necklaces and Janet and Jackson can trade among themselves. (i) Draw a new Edgeworth Box showing: (1) two of Janet's indifference curves including an arrow pointing towards the direction of higher utility, and (II) two of Jackson's indifference curves including an arrow pointing towards the direction of higher utility (use a different colour). (ii) Is there any competitive equilibrium in which gold necklaces and diamond rings have the same price? Explain and illustrate your answer. If your answer is yes, identify Janet's and Jackson's competitive allocations. (iii) Is there any competitive equilibrium in which gold necklaces are more expensive than diamond rings? Explain and illustrate your answer. If your answer is yes, identify Janet's and Jackson's competitive allocations. Draw a new Edgeworth Box showing the set of Pareto Optimal allocation(s). (d)

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter16: Information, Risk, And Insurance
Section: Chapter Questions
Problem 4RQ: Why might it be difficult for a buyer and seller to agree on a price when imperfect information...
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Question 3 Mr. Richie was a wealthy business man. He had two children, Janet and Jackson. Richie has gold necklaces and diamond rings. In this economy, Mr. Richie was the only consumer who had gold necklaces and diamond rings. Mr. Richie did not write any will. When he died, half of his gold necklaces were inherited by Janet, and the other half by Jackson. Similarly, half of his diamond rings were inherited by Janet and the other half by Jackson. Janet and Jackson did not have any other assets and did not receive anything else from Mr. Richie. (a) Draw an Edgeworth Box with two consumers, Janet (lower left) and Jackson (upper right), and two goods, gold necklaces (horizontal axis) and diamond rings (vertical axis). Locate the endowment bundles in the Edgeworth Box, after Janet and Jackson receive their father's assets. (b) Suppose a gold necklace is more expensive than a diamond ring. Draw a new Edgeworth Box showing Janet's and Jackson's budget sets. (c) Suppose that Janet only cares about diamond rings, Jackson only cares about gold necklaces and Janet and Jackson can trade among themselves. (i) Draw a new Edgeworth Box showing: (1) two of Janet's indifference curves including an arrow pointing towards the direction of higher utility, and (II) two of Jackson's indifference curves including an arrow pointing towards the direction of higher utility (use a different colour). (d) (ii) Is there any competitive equilibrium in which gold necklaces and diamond rings have the same price? Explain and illustrate your answer. If your answer is yes, identify Janet's and Jackson's competitive allocations. (iii) Is there any competitive equilibrium in which gold necklaces are more expensive than diamond rings? Explain and illustrate your answer. If your answer is yes, identify Janet's and Jackson's competitive allocations. Draw a new Edgeworth Box showing the set of Pareto Optimal allocation(s).
Transcribed Image Text:Question 3 Mr. Richie was a wealthy business man. He had two children, Janet and Jackson. Richie has gold necklaces and diamond rings. In this economy, Mr. Richie was the only consumer who had gold necklaces and diamond rings. Mr. Richie did not write any will. When he died, half of his gold necklaces were inherited by Janet, and the other half by Jackson. Similarly, half of his diamond rings were inherited by Janet and the other half by Jackson. Janet and Jackson did not have any other assets and did not receive anything else from Mr. Richie. (a) Draw an Edgeworth Box with two consumers, Janet (lower left) and Jackson (upper right), and two goods, gold necklaces (horizontal axis) and diamond rings (vertical axis). Locate the endowment bundles in the Edgeworth Box, after Janet and Jackson receive their father's assets. (b) Suppose a gold necklace is more expensive than a diamond ring. Draw a new Edgeworth Box showing Janet's and Jackson's budget sets. (c) Suppose that Janet only cares about diamond rings, Jackson only cares about gold necklaces and Janet and Jackson can trade among themselves. (i) Draw a new Edgeworth Box showing: (1) two of Janet's indifference curves including an arrow pointing towards the direction of higher utility, and (II) two of Jackson's indifference curves including an arrow pointing towards the direction of higher utility (use a different colour). (d) (ii) Is there any competitive equilibrium in which gold necklaces and diamond rings have the same price? Explain and illustrate your answer. If your answer is yes, identify Janet's and Jackson's competitive allocations. (iii) Is there any competitive equilibrium in which gold necklaces are more expensive than diamond rings? Explain and illustrate your answer. If your answer is yes, identify Janet's and Jackson's competitive allocations. Draw a new Edgeworth Box showing the set of Pareto Optimal allocation(s).
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