Answered: QUESTION 8: The initial endowment point…

Business

Economics

QUESTION 8: The initial endowment point is not Pareto efficient. What is a Pareto efficient point?

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Frontiers Of Microeconomics

Section: Chapter Questions

Problem 8PA

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A7. In the two good-two consumer Edgeworth Box diagram drawn below, Good X is measured horizontally, and Good Y is measured vertically. Given the initial endowment of goods at point E and the prevailing market prices, both consumer A and consumer B wish to be at point T. Which of the following statements is true? OB Good Y E UB UA Good X OA there is excess demand for Good X; excess demand for Good Y there is excess demand for Good X; excess supply for Good Y there is excess supply for Good X; excess demand for Good Y none of the above А. В. С. D.
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2. There are two consumers A and B and two commodities x and y. ,1-a. UA = x%yAa: Utility function of consumer A. w: consumer A's endowment of good x w: consumer A's endowment of good y UB = 2xB + YR: Utility function of consumer B. w: consumer B's endowment of good x w: consumer B's endowment of good y Px: price of good x Py: price of good y p = Px /py; relative price of good x a. Find the equation of the contract curve. b. Find the competitive equilibrium (p*, x, yÃ, x;, yB). Your answers should be in terms of the parameters.
12. Which of the following are actual Pareto-efficient changes? Explain briefly. a. You buy three oranges for $1 from a street vendor. b. You are near death from thirst in the desert and must pay a passing vagabond $10,000 for a glass of water. c. A mugger steals your wallet. d. You take a taxi ride in downtown Manhattan during rush hour.
Consider a two-person endowment economy characterized by the Edgeworth Box below: a. b. C. X2. OA A E B OB X1 Are the allocations depicted at points A and B Pareto efficient? Explain your reasoning. Add bowed indifference curves that reflect the utility that the two consumers get from the endowment depicted at point E (assume that they value both goods). What is meant by the term "Pareto improvement." In your diagram highlight the set of Pareto improving allocations given the endowment.
Jane has 9 liters of soft drinks and 11 sandwiches. Bob, on the other hand, has 11 liters of soft drinks and 9 sandwiches. At these endowments, Jane's MRSds of soft drinks for sandwiches is 0.8 and Bob's MRSds is 2.3. a) Illustrate the situation in the E-box. Which of the following graphs represents the situation correctly? [Select] 11 sandwiches 0₂ sandwiches 0₁ Graph a Graph b 11 0₁ soft drinks 0₁ soft drinks b) Is this allocation efficient? [Select] c) If allocation is not efficient, what changes will make both consumers better off? [Select] For question (a), choose one answer from "graph a" and "graph b" For question (b), choose one answer from "yes" and "no" For question (c), choose one answer from "Jane should trade some of her soft drinks for Bob's sandwiches","Jane should trade some of her sandwiches for Bob's soft drink" and "It is already efficient" 11