Remy and Emile consume only cheese (x,) and strawberries (x2). Remy's preferences are describedby UR = min{xf, 2x5}while Emile's preferences are described by UE = xf + x5 . Remy has 8 piecesof cheese and 1 pint of strawberries while Emile has 4 pieces of cheese and 3 pints of strawberries.(a) Draw an Edgeworth box with x, on the horizontal axis and x, on the vertical axis. Position Remyon the bottom left corner and Emile on the top right corner. Indicate the total number of unitsof x, and x2. Label the endowment allocation. Show Remy's and Emile's indifference curves.(b) Derive the equation of the contract curve. In your graph in (a), draw the contract curve.(c) Set x1 as the numeraire, i.e., assume p, = 1 and p2 = p. Find the competitive equilibrium.Hint: For Emile to consume at a Paretoefficient allocation, what should the prices be?(d) Redraw the Edgeworth box. Indicate the equilibrium allocation, e. Draw the equilibrium budgetline.

Note: Since the question includes four sub-parts, we are restricted to answer only first three of…

Remy and Emile consume only cheese (x,) and strawberries (x2). Remy's preferences are described by UR = of cheese and 1 pint of strawberries while Emile has 4 pieces of cheese and 3 pints of strawberries. min{xf, 2x{}while Emile's preferences are described by UE = xf + x5 . Remy has 8 pieces %3D (a) Draw an Edgeworth box with x, on the horizontal axis and x, on the vertical axis. Position Remy on the bottom left corner and Emile on the top right corner. Indicate the total number of units of x, and x,. Label the endowment allocation. Show Remy's and Emile's indifference curves. (b) Derive the equation of the contract curve. In your graph in (a), draw the contract curve. (c) Set x, as the numeraire, i.e., assume p1 = 1 and p2 = p. Find the competitive equilibrium. Hint: For Emile to consume at a Paretoefficient allocation, what should the prices be? (d) Redraw the Edgeworth box. Indicate the equilibrium allocation, e. Draw the equilibrium budget line.

Remy and Emile consume only cheese (x,) and strawberries (x2). Remy's preferences are described by UR = of cheese and 1 pint of strawberries while Emile has 4 pieces of cheese and 3 pints of strawberries. min{xf, 2x{}while Emile's preferences are described by UE = xf + x5 . Remy has 8 pieces %3D (a) Draw an Edgeworth box with x, on the horizontal axis and x, on the vertical axis. Position Remy on the bottom left corner and Emile on the top right corner. Indicate the total number of units of x, and x,. Label the endowment allocation. Show Remy's and Emile's indifference curves. (b) Derive the equation of the contract curve. In your graph in (a), draw the contract curve. (c) Set x, as the numeraire, i.e., assume p1 = 1 and p2 = p. Find the competitive equilibrium. Hint: For Emile to consume at a Paretoefficient allocation, what should the prices be? (d) Redraw the Edgeworth box. Indicate the equilibrium allocation, e. Draw the equilibrium budget line.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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